What happened with the Suez Canal?
On March 23, the Ever Given became horizontally wedged in Egypt’s Suez Canal before being dislodged six days later. According to tracking data from Lloyd’s List Intelligence, 372 vessels were stalled waiting to transit the canal.
The canal’s temporary blockage created a domino effect of global supply chain disruptions, worsening already congested ports, railyards, and distribution centers. This created further strain on containership shortages, delaying shipments, including the delivery of raw materials that will also impact downstream production and the manufacturing of numerous consumer goods. Its economic impact is difficult to grasp, but reports show the losses were $6.7m per minute.
Its Impacts Globally:
Many industries across many nations were impacted with the United States and Europe being the largest effected.. Some examples of affected items included high-end kitchen and bathroom linens, construction materials, rubber, electrical items, some pharmaceutical supplies, and vehicle parts and accessories. The automotive industry was especially hit because it primarily uses a “just in time” supply chain, where items are transported to factories as they are needed for manufacturing. The large costs associated with the delay forced prices for many commodities such as oil to increase and estimates see the blockage causing “operational challenges throughout Q2 and likely Q3”.
Due to the global semiconductor shortage, the automotive industry is experiencing some effects especially around certain set products and display production,” said Ben Suh, head of Samsung’s investor relations, on a call with analysts. “We are discussing with retailers and major channels about supply plans so that we are able to allocate the components to the products that have more urgency or higher priority in terms of supply.” This means companies must predict for demand and if they cannot have access to their suppliers, they cannot meet the demand predicted.
Reconsiderations in Supply Chain Management:
Many other companies with global supply chains already stretched thin by the pandemic, especially those that lack a diversified and robust supply chain, are struggling to manage. Moreover, companies are having to cope not only with global disruptions but also drastic fluctuations in consumer demands.
There are several measures supply chain teams can take—both in the short and long term—to reduce risks and better prepare for unanticipated incidents. The first step supply chain teams can take in the short term is to conduct an immediate assessment of all their suppliers to determine which ones have been impacted by the Suez Canal blockage and how urgently the company needs the goods that are currently backlogged. This means reevaluating the diversification of the supply chain in ways not previously explored. This reevaluation of the supply chain needs means new due diligence on suppliers and distribution partners as well as the sizes of the containers as not all containers can go through the ports. Many companies have now come to the conclusion that they cannot rely solely on one supplier and are transitioning from a “just in time” chain to a “just in case” chain.
The “Snowball Effect”:
The greater thing to consider about the impact of the Suez Canal Blockage is the global supply chain was already strained prior. Examples of this can be seen in larger and smaller scale events like severe winter weather, Brexit, global trade tensions between China and the West, a range of new regulatory obstacles, and the elephant in the room, COVID-19. Many suppliers downsized or closed manufacturing plants to remain financially stable. On top of those issues, there were already delays caused by a container shortage. The combination of all of these problems made the blockage significantly more devastating and increased the supply and demand gap. Getting manufacturing capacity back to pre-pandemic levels will not happen overnight. There is a similar issue with skills; as supply chains slowed down, many employees were forced to find jobs in other sectors.
The pandemic delivered one of the most significant shocks ever to hit global supply chains. Global trade was turned on its head. It resulted in supply shocks as governments, businesses and individuals struggled to procure basic products and materials. We as brokers need to be aware of the shifting thought process on client’s future supply chains and how to best accommodate and insure their operations. The Global Risk & Benefits team is prepared to do an analysis and provide compliance requirements and trends.
https://www.cnbc.com/2021/05/07/chip-shortage-is-starting-to-have-major-real-world-consequences.html
Economic Impacts of the Suez Canal blockage incident (ocean-insights.com)