Covid-19 and the Ever Given incident show the significance of the impact on supply chains. These examples make crystal clear that supply chains depend on stable and secure physical infrastructure.
Without stable and secure infrastructure, extended (global) supply chains invite unnecessary risk.
Infrastructure is the great enabler making international commerce possible. China’s Belt and Road Initiative underscores this point.
This post will look at impacts of infrastructure on global shipping.
Also since infrastructure has global impacts, it’s vital to assess their risks to your supply chain.
Infrastructure Vulnerabilities Affect Your Supply Chain and Beyond
To begin with, there are seven major trade route chokepoints. They are the Suez Canal, the Panama Canal, and the Strait of Hormuz. Four other chokepoints relate to oil shipments. These include the SUMED pipeline, Bab el-Mandeb, the Danish Straits, and the Turkish Straits.
Obstruction of any of these chokepoints will affect the global economy. With over ninety percent of world trade conducted on water, you can expect the impacts to be enormous.
Obstructions of chokepoints will result in ripple effects (bottleneck and bullwhip) throughout the supply chain.
One critical effect is cost. In the case of the Suez blockage, USA Today reported the total estimated cost at $1 billion. Cost of shipping will continue to increase due to delays that result in:
- Costs due to delays, spoilage, damage of detained cargo.
- Shipping costs for fuel and containers.
- Canal, port, and terminal congestion.
- Shortages of ship and container availability.
- Supply shortages.
Other potential negative impacts include:
- Damage to your brand, and
- Loss of market share and customers
As you can see, infrastructure extends into many areas. It affects your supply chain and your business. That’s why infrastructure should be a critical component of supply chain planning.
Review Your Exposure to Fragile Infrastructure
To build a resilient supply chain, you must consider how infrastructure can affect it. Below are some items to consider.
Use these to help filter out negative impacts like port congestion, capacity shortages and shipping costs.
- What percentage of your business depends upon ocean shipping?
- What percentage of that ocean shipping is exposed to the major chokepoints?
- If the percentages are significant, or out of balance, can you diversify that exposure?
- Can you reduce infrastructure impacts by assessing transportation costs and tariffs?
- What ports do you use today? What shape are those ports in?
- Can you reduce or expand the number of ports to diversify for costs and congestion?
- Have you identified backup ports to allow for re-routing as needed?
- Can you influence on-shoring or near-shoring to reduce transportation risk?
- Can you reduce infrastructure risk by optimizing intermodal solutions?
- Does your supply chain have seamless, end-to-end communications (phone, computer, etc.)
- Do you have a reliable network of partners who can facilitate and troubleshoot issues on the spot?
- If so, is your network global with worldwide reach?
- Can you remove unnecessary complexity and simplify your supply chain ?
- Do you work with a reliable and professional 3PL to manage your supply chain?
This is only a start. These questions will help you consider potential courses of action. They, in turn, should lead to lead the consideration of other viable alternatives. In your analysis, be sure to address prevention, avoidance, mitigation, and recovery.
Your goals are to build-in adaptability and resilience. Building them into your supply chain will help you achieve a sense-and-respond capability.
A sense-and-respond capability enables real-time decision-making. And that can help reduce the effects of infrastructure’s impacts.
The Way Ahead in 2021
The absence of reliable, secure, and safe infrastructure may affect seamless trade. This can result in undue risk and potential chaos. The grounding of the Ever Given provides a timely lesson in how infrastructure impacts supply chains.
So, assessing infrastructure vulnerabilities should be a key part of your supply chain planning. More important is putting that lesson to use.
If you haven’t already done so, now is the time to build adaptability and resilience into your supply chain.
American Global Logistics has the capabilities to help you navigate infrastructure’s minefields. Reducing risk is another aspect at which we excel. And we’ll also help reduce complexity.
We rely on our people, processes, and innovation to ensure the viability of your supply chain.