Evaluating the Impact of the Suez Canal Blockage

Just over a week ago the Ever Given, a 200,000 ton container ship, was freed from the Suez Canal. The vessel was wedged in the canal for 6 days, preventing any ships from passing. 

As an integral part of one of the world's busiest trade routes, this blockage has caused major disruption to many companies who are already struggling with their global supply chains. Approximately 12% of all global trade goes through the Suez Canal, with special emphasis on the Asia-Europe and global oil trades. With limited options at hand, ships faced the difficult decision to either wait for the Ever Given to be freed or to reroute around the Cape of Good Hope -- a move that would add nearly two weeks to their journey. 

While the backlog of over 400 ships has now made its way through the canal, the disruption is far from over. Insights from Lloyd’s List estimate that each day more than $5.1 billion in westbound traffic and $4.5 billion in eastbound traffic moves through the Suez Canal. These ships do not only contain consumer goods, but also carry empty shipping containers returning to China where container inventory is already strained and impeding cargo movement.

At 1,312 feet the Ever Given is one of the largest container ships in the world and spans the maximum length allowed in the canal. While experts are pointing to strong winds as the culprit, it is no doubt that the massive size of this ship  -- built to handle mass consumerism, reduce costs per container and keep up with environmental regulations -- is in part to blame.

As we look into the future the question becomes how can we prevent similar mishaps? With the introduction of new fuel restrictions from IMO 2020, it is likely that the size of the average container ship will only continue to grow, causing canals and ports to spend millions of dollars to accommodate such large vessels. However, this incident has exposed the risks associated with using such large ships, indicating a need for more in-depth planning to accommodate these mega-vessels and an adjustment to scheduling particularly in these high volume choke-points. Either better infrastructure must be built to accommodate such large ships or such large vessels may begin to carry a risk that outweighs their reward. Regardless of the size of the ships being used, the events that have occurred over the past 16 months should be an adequate reminder that given the scope and interconnectedness of the global supply chain, unforeseen and disruptive events are ever more likely to occur.

In our post “5 Best practices to overcome challenges relating to CNY shutdown, Crunch time in Shipping & COVID” we discuss how one of the big takeaways from the pandemic is that companies that were able to diversify their supplier/factory network and spread their inventory across multiple production channels were able to quickly recover. Historically, companies have looked to keep their supply chain lean, outsourcing their efforts to a single supplier, with cheap labor costs and the ability to ramp up quickly. What has happened over the past two weeks in the Suez Canal provides another example of how having a diversified supply chain can allow companies to mitigate the fallout associated with global supply chain disruptions. By spreading suppliers across multiple countries, companies can avoid major disruptions. In the case of the Suez Canal, most goods shipped between the US and China will face much less delay than those traveling between India and the US, where traversing the Suez is a much more prominent route. Companies who are able to shift their manufacturing between these origins quickly are able to be most resilient to events such as these.

Despite the benefits, spreading your manufacturing across multiple factories and even countries can also increase its complexity. This is all the more true when visibility into your factories is limited and communication less-than-ideal. With SILQ, developing a more nimble supply chain is easy. We can source your factories (or work with your existing ones!) and provide you with one central hub for production management, giving you increased visibility into all of your production. Ultimately, SILQ allows you to mitigate risk in your supply chain, gain faster lead times and better guard against another “Suez Canal” style event.

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