When most news is bad news, as it often is during a global pandemic, there’s nothing the internet loves more than rallying around a big news event that gets everyone’s attention. Information market traders are no different: when there’s a big story, they go looking for a way to put some money on it. When the story came out that there was a big stuck boat in the Suez Canal, it proved to be an ideal case study of how information market platforms like Polymarket can provide a public information signal about high-visibility public news stories and major economic events.
When a strong wind gust jammed the unfortunate cargo ship Ever Given into the banks of the Suez Canal, the internet rejoiced. Finally, a simple story that everyone could wrap their heads around.
As Twitter user @hpheisler elegantly summarized, “…every other piece of global news is so hard to comprehend or explain. The boat? It’s just stuck. Stuff won’t go. Boat needs to be not stuck. That’s it.” The very big boat being very stuck felt relatable to some, and proved to be highly meme-able:
At the same time, however, the Big Stuck Boat was also a Really Big Problem for, well, everyone. People could laugh because no one was immediately injured in the incident, but the complete blockage of the Suez Canal had enormous impacts on international supply chains that rely on canal traffic. The incident set off shortages and drove up the prices of commodities. The Suez Canal handles 12% of all global trade — $9 billion in cargo per day — which really adds up over the course of a six-day logjam.
Oil prices jumped from $60/barrel for Brent crude to $65/barrel on the news of the pile-up (and dropped back down once it was eventually freed), moving global oil markets by billions of dollars. LNG and other commodities were impacted by shipping rates soaring as ships got stuck waiting. Not even Swedish furniture giant IKEA escaped unscathed: 110 containers of IKEA goods were stuck aboard the Ever Given.
Insurers and reinsurers were also hard-hit by the incident, whether they were insuring the Ever Given or any of the literally hundreds of ships stuck waiting on either end of the canal. While perishable goods and livestock were probably the hardest hit by the delays, other retailers were almost certainly left without critical materials to fulfill contracts and leading to cascading failures.
At the time of this writing, the Ever Given is still stuck — legally this time, not in mud — due to an over $900 million complaint lodged against it by the Suez Canal Authority (SCA). They claim hundreds of millions of dollars in lost fees from shipping and reputational impacts alongside a sizeable fee for salvaging the Big Stuck Boat from the muck.
Everyone was talking about the Big Stuck Boat, and it was all over the news. That was why information market traders (like me) were extremely excited when Polymarket created a market titled “Will the Ever Given be dislodged from the Suez Canal by March 30?”. As soon as I saw the news, I tweeted about it, and other traders took notice as well.
Information markets provide a way for the wisdom of the crowds to be distilled into a simple measure of probability. Where traders are able to back their predictions with real money, they will move prices to reflect their internal “true” odds of an event occurring — each “correct” share pays $1, so if you think something is certain to happen you might be willing to pay (and risk) $0.99 per share to collect that last penny. If you think something is a longshot, though, you may only be willing to back your prediction up to a few cents for a lottery ticket chance at the dollar. From older platforms such as InTrade or PredictIt, to the more recent entrant Polymarket, information markets can cover topics from popular culture to politics — as long as an easily understood set of rules can be agreed on, market participants can begin moving prices to reflect the “odds.”
News outlets have used information markets as a source of data to feed reporting — updating the public on the changing “odds” of a particular candidate winning an election, as determined by market traders. But platforms like PredictIt suffered from an individual cap on investment in any one market, preventing confident traders from aligning prices with their true estimates of probabilities and building in permanent inefficiencies. These inefficiencies that impact the “odds” are something that I’ve written about before:
Polymarket has no such caps, and so serves as a test of traders’ ability to put much larger amounts of money behind their predictive ability. This does not mean that the “whales” are always right, but they have a much bigger incentive to put additional research behind their purchase. Well-informed market participants are much more profitable in the long term than dart-throwing dilettantes.
Taken at scale, a market like the Ever Given provides a derivative trade against a real-world economic event with billions of dollars at stake. Just as airlines might hedge the price of oil as a significant input to their costs, what if traders could use a bet that the Ever Given would be dislodged as a hedge against a short position on Brent crude? Or an insurance company could hedge against an insured cargo remaining stuck awaiting transit through the Suez.
This particular market asked traders if the ship would be dislodged by noon Eastern Time on March 30. It featured simple rules: will a ship-tracking website show the ship above or below a certain latitude near where it was run aground. Shares traded back and forth until the ship was finally free with only one day left of trading — early in the morning of March 29th. So how did traders in this market do in predicting the eventual outcome? First of all, I should disclose that I personally lost a few hundred dollars on this market. As a former researcher focusing on Middle East issues, and Egypt in particular, when Egyptian authorities promised that Canal traffic would resume soon I was very skeptical.
Other traders were significantly more optimistic than I was about the chances of the Ever Given coming free. Even as experts said the ship could be stuck for “weeks” or even “months,” the price of “yes” that the ship would come unstuck never fell too low, although “no” was definitely favored for some time. One trader commented that they felt with so much money on the line for the canal and the shipping company, no effort would be spared — the potential of hundreds of millions of dollars in losses would motivate crews to extricate the ship as quickly as possible. Others pointed to salvage experts preparing to unload the ship container-by-container as a clear sign that things would take a while. Some simply bought shares because “the price was right.” The market was a hot topic among traders, and even featured in a podcast episode.
I spoke with traders that took both sides of this market, winning and losing thousands of dollars apiece. These traders cited a number of different sources of information they used to decide: photos and videos taken in the area to try to judge if there was visible damage, satellite tracking of tugboats mentioned as being significant to the salvage operation, or other container ships beginning to take the expensive diversion around the tip of Africa to avoid the Canal (assuming that those companies would have done research before committing the money to extra fuel costs). One trader, @CSP_trading, programmed a bot that would tell them if the Ever Given began to move based on the satellite track.
The market steadily became more and more pessimistic as time passed and preparations began to be made to unload the ship. But very early in the morning of March 29th, the ship budged:
The Suez Canal Authority released a statement that the Ever Given had been “successfully refloated” — and the stern of the boat had moved off the banks of the Canal and into the channel.
The market reacted hard, believing that the ship would soon be on its way:
This was shortly clarified that the ship had been “partially refloated” and was not fully freed — prompting the price of ‘yes’ to quickly fall back.
Some traders (and myself) were watching the tidal charts to see when the next effort to dislodge the ship might occur as time ran out on the market. But sharp-eyed traders watching the live position of the Ever Given (or an Arabic news livestream of the ship salvage effort) noticed that the ship did indeed start to move. The market reacted quickly as it was finally freed and began to move north in the Canal. Starting at a low of 38 cents at 8:57 am Eastern, the price rose over the next 10 minutes as it became clear the market was over:
I, of course, had decided I could take my eyes off the news until the next high tide and was left holding shares of “no” as I missed all the action. In the end, just under $500,000 was traded in the market and the price proved to be a quite good track of the overall news sentiment around the Ever Given as traders updated prices in real time to match what they were seeing.
If all of the excitement from this market gives you the sense that you could be the next great information market trader, you can read more about how to sign up for Polymarket here. And at the time of this writing, you can still place a wager on whether or not the Ever Given will be freed to leave the Great Bitter Lake before the end of July.
In the end, I’m just disappointed that this didn’t happen:
Full disclosure: Polymarket has compensated me for this post.
