Supply Chain Resilience & the Suez Canal Blockage
Updated: Jun 25, 2021
3 months ago, on 23rd March 2021, the resilience of global supply chains was brought sharply into focus as the Ever Given blocked the Suez Canal for 6 days. Whilst for large parts of the internet it was nothing more than joke fuel, for the logistic industry it could not have come at a worse time, compounding many large problems from the pandemic including border closures, large e-commerce demand, and rising shipping costs and delays. The blockage was relatively short-lived but the effects are still being felt and will impact into the long term.
A blockage like this had been predicted as early as 2015 by the OECD noting that ship size was growing faster than the size of the infrastructure to serve them, increasing the likelihood of failures. Therefore Supply chains should have been aware of this type of risk and planned mitigation strategies for a failure like this. Thankfully the blockage was short but the global supply chains are still to recover and will impact supply chains and surrounding economies in the short, medium and long term.
Many supply chains experienced delays due to the blockage, with lean and Just in Time systems feeling the impacts of the blockage the hardest. This is not surprising, as according to the website Supply Chain Dive, 62 container ships were directly impacted, an equivalent of 3% of the total global container ship capacity. On top of direct blockage delays, after the blockage, ports close to the canal were inundated by traffic of the ships stuck by the blockage.
Although this incident had been predicted many had not mitigated the risk and hence, only had a limited number of options;
Wait for days, or even weeks, till the blockage was removed and risk impacting customers
Divert around the Cape of Good Hope, adding at least 9 days to journey time
Change mode of transport via Air or road, increasing shipping costs dramatically
Or if viable, manage demand and wait for the supply chain to settle down.
Thankfully the blockage cleared relatively quickly meaning the largest of impacts were re-balanced with a few weeks. However it was clear that the risk mitigation plans around this pinch point was severely lacking for many supply chains.
The accident also compacted logistic issues that were first caused by the pandemic. One particularly serious impact still being felt 3 months on is container displacement. Due to the demand for shipping capacity back in Asia, container ships are unloading containers, both empty and full, in the west, to head back to Asia unloaded as fast as possible. This has caused logjams and delays in ports, and also disrupted supply of containers themselves in Asia too.
The Suez blockage compounding this issue, with ships that were delayed unloading all their containers in the closest port available, whether or not this was the intended destination. This container costs are now up to 3 times 2019 prices with a forecast that it will not return to normal levels until well into 2022. However if the supply and demand for containers could be managed using digital IoT tags tracking location of containers and digital models of the logistic context, issues like this in the future could be sorted quicker.
With the global economies in their current weak state, the closure, however short, will have affected the economies of countries dependent on global lifeline of trade. Pre-pandemic, an estimate of 14% of the value of global shipping exports were dependent on the Suez canal, equivalent to a value of $1.8 Trillion per year. Closer to home, Europe is highly dependent on the Suez Canal for its imports, particularly from Asia, with 62% or $775 billion of shipping import value into Europe dependant upon the Suez Canal.
To investigate this, Reuleaux modelled obtained UN Comtrade data. Using this we modelled export relationships between nations that were dependant on the canal.
12.6% of the GDP of the top 5 exporters was Suez dependent exports. It is notable that some of the most dependent countries were larger economies, e.g. Vietnam, Hong Kong, Singapore and UAE. Closer to home, 3.4% of Europe’s total GDP is exports dependant on the Suez Canal.
In supply chain design, it is worth being aware of these dependences economies and high impact points, e.g. the canal. An exposed supply chain pinch point might make particularly vulnerable to attack. For example a malicious actor could impact 2.3% of the entire global trade economy through a single cyber attack on the canal.
It is unsurprising that the global supply chain resilience has been under intense scrutiny with an estimated value of $30 billion of stock was directly disrupted in just 6 days, with many more ripple effects through out global supply chains. With resilience being key in any supply chain management, the following disciplines are key to reduce impacts for events like this on your supply chain:
Understand your end-to-end supply chain – Without the detail knowledge of the end-to-end supply chain, pinch points the supply chain is dependent on may be overlooked, like the canal. The blockage underlines how that this understanding needs to be not just commercial knowledge but also a physical and infrastructure supply chain dependency too.
Plan for risk on high impact elements of the supply chain – To be proactive in any global supply chain, scenario planning on pinch points should be performed to be on the front foot when failure occurs. This includes what diversions are possible, other modes of transport, other suppliers that can be used in an emergency.
Monitor supply chain elements – As the canal blockage showed, to gain competitive advantage, on going monitoring of risks and issues, and a rapid digital alert system with live data on known supply chains issues, to enable supply chain managers to be able to act quickly.
Perform Supply Chain Analysis to Respond to impacts – To understand the true impact of incidents, like the Suez, the ability to link event, to the broader context, like ERP systems, helps understand impact on not just the event itself but also the rest of the supply chain and the economic impacts.
The Suez Canal blockage incident has highlighted that the impacts of unpredictable events can send ripples through the whole of the supply chain. If you’d like to discuss how your business could manage the resilience of your supply chains better, do get in touch here, we’d love to see how we could help.
Header Image by Copernicus Sentinel-2, ESA - https://scihub.copernicus.eu/dhus/#/home, CC BY-SA 3.0 igo, https://commons.wikimedia.org/w/index.php?curid=102700476