Suez Canal Supply Chain Disruption Calls Globalization into Question

On March 23, 2021, the Ever Given, one of the world’s largest container ships, went aground in the Suez Canal. It ran aground due to a sandstorm and high winds.

The highly stacked containers acted as sails. And that caused the wind to blow the ship sideways blocking the canal. That obstructed all traffic flow through the canal until March 29, 2021.

That further caused a host of issues with global impacts.

Earlier this year, we featured a blog post: January Sets the Stage for 2021: Supply Chain Disruptions Continue”. That post asserted Covid-19’s lingering effects would continue to adversely affect operations.

We also stated that 2021 would be a year of resilience and stabilization. But with the Ever Given’s grounding, resilience and stabilization are now more challenging,

As the Ever Given’s grounding in the Suez Canal shows, you should expect supply chain disruptions. They’re becoming common rather than rare. In this case, the grounding was a weather-related event that defied human control. There’s no avoiding the unexpected.

So, you should expect supply chain disruptions to occur. According to Robert Koopman, WTO’s chief economist, dealing with disruptions, is “… all part of doing business in today’s interconnected global economy.”

Given that, the Suez Canal disaster serves as model case study in supply chain disruption. And it was a whopper of a supply chain disruption. On a macro-level, the Suez Canal grounding is one for the history books.

This single supply disruption caused significant, multiple impacts. And that will further strain resilience and stabilization on a global scale. Moreover, this exacerbates the lingering effects of the pandemic.

You could say the effects are epic. Some have been quantified, others have yet to be quantified. (We’ll cover the impacts below.)

On a macro level four key issues arise. They include supply chain management, supply chain risk management, infrastructure issues, and globalization/global trade.

This post will focus on the global impacts of globalization to your business. We’ll address the other three macro issues in upcoming posts.

 

Globalization and Global Trade – Costs and Benefits 

Globalization exists today and has grown because of its inherent benefits. It optimizes the use of cheap labor, expertise, and natural resources. It also spurs innovation, which leads to better, faster product development and service.

That leads to, in most cases, lowest cost or best price to the consumer. It also improves availability of products and services as they’re available worldwide.

In general, those are globalization’s benefits. You can agree the benefits area not insubstantial.

That said, it’s time to ask whether globalization takes on too much risk? This latest supply chain disruption, calls globalization into question. To answer that let’s look at the impacts of this latest supply chain disruption.

 

Direct and Indirect Impacts of the Suez Canal Disaster

As stated, this was a whopper of a supply chain disruption. As a result, the negative effects were plenty. Some are new and others compound the pandemic’s residual effects.

At its peak, the grounding of the Ever Given caused the blockage of 450 ships. Those ships carried commodities like livestock, gas, oil, water, and food. Without further ado here are the direct and indirect impacts of this disaster.

  1. Further degradation of transportation reliability and increased port congestion.
  2. More and extended delays due to rerouting and time lost in re-floating the Ever Given.
  3. Increased and extended delays will cause supply shortages caused – compounding the effects of the pandemic.
  4. Increased capacity shortages further compounding capacity issues related to the pandemic.
  5. Increased blank sailings causing further delays on top of structured blank sailings from the pandemic.
  6. Out-of-control price increases impacting suppliers, manufacturers, shippers, and consumers.
  7. Although global economic damage is too early to quantify, Allianz estimates a reduction in trade of 0.2 to 0.4 percent.
  8. A BBC report estimates the cost to the Suez Canal Authority at $14-$15 million /day. That comes to about $98-$105 million for the 7-day period.
  9. Some ships traveling from Asia to the Middle East have increased rental costs 47% to $2.2 million (WSJ)

There may be more impacts, but these nine show this is no small problem. That means stakeholders likely won’t mitigate these impacts easily or quickly. This disruption left no one untouched.

An Allianz Research note stated: “The problem is that the Suez Canal blockage is the straw that breaks global trade’s back.”

This implies globalization’s costs may exceed its benefits. More important, you must assess your exposure to globalization’s risks. You must decide whether you can afford to take on these risks. And then you must determine whether and how to mitigate those risks.

With the diversification of supply chains already underway, this natural disaster reinforces that trend.

 

Key Lessons Learned from the Suez Canal Disaster

Hindsight is always 20/20. That’s good news because it means we can learn from past events/disasters like this one.

This disaster makes four lessons clear:

  1. The infrastructure supporting global trade is fragile and vulnerable, highlighting the heightened risk of global trade.
  2. The costs of maintaining the status quo are too high. This reinforces the trend toward diversification of sources.
  3. Logistics is a strategic endeavor and now ranks with operations in importance, as unpredictability reveals its commonness.

Today’s world of globalized trade, due to its size and scope, results in worldwide impacts. Those impacts are logistic, financial, and economic. They also have geo-political ramifications.

With that, the grounding of the Ever Given should serve as a warning to the viability of global trade. This disruption shows that risks to global trade are inherently serious and hazardous.

In today’s complex world, supply chain management has become a strategic endeavor. It also one dominated by professionals. That makes outsourcing with a reliable partner a key part of your business strategy.

At American Global Logistics  we have experienced teams of experts, specialists, and a worldwide network you can leverage to meet your daily and long-term challenges.

Contact American Global Logistics  to find out more about becoming your strategic partner. When you partner with us, you’ll partner with a trustworthy, professional, and seasoned 3PL.