[Follow our live coverage of the stuck ship in the Suez Canal.]
LONDON – The world received another warning this week of the dangers of its heavy reliance on global supply chains. When a single ship ran aground in the Suez Canal, blocking traffic in both directions, international trade was faced with a monumental traffic jam with potentially dire consequences.
The restless vehicle is not just any ship. The Ever Given is one of the largest container ships in the world with space for 20,000 metal boxes that transport goods across the sea. And the Suez Canal is not just any waterway. It is an important conduit connecting the factories in Asia with wealthy customers in Europe, as well as an important conduit for oil.
The fact that a mishap could wreak havoc from Los Angeles to Rotterdam to Shanghai underscored the extent to which modern commerce revolves around truly global supply chains.
In the past few decades, management experts and consulting firms have advocated just-in-time manufacturing to limit costs and increase profits. Instead of wasting money stocking up extra goods, companies can rely on the magic of the internet and the global shipping industry to conjure up what they need, when they need it.
The adoption of this idea has brought nothing less than a revolution to major industries – automotive and medical device manufacturing, retail, pharmaceuticals, and more. It has also brought a bonanza for executives and other shareholders: money that is not spent on filling warehouses with unneeded auto parts is, at least in part, money that can be given to shareholders in the form of dividends.
However, as in everything in life, overdoing a good cause can be dangerous.
Over-reliance on just-in-time manufacturing explains how medical workers from Indiana to Italy cared for Covid-19 patients without proper protective gear like masks and robes during the first wave of the pandemic.
Health systems – many under the control of profitable companies accountable to shareholders – believed they could rely on the internet and the global shipping industry to deliver what they need in real time. That was a fatal miscalculation.
That same dependency explains why Amazon failed to provide adequate supplies of masks and gloves to its warehouse workers in the US during the first few months of the pandemic.
“We have placed orders for millions of face masks that we want to give to our employees and contractors who cannot work from home, but very few of those orders have been fulfilled,” said Amazon founder Jeff Bezos in a letter to all employees last March. “Masks are still in short supply worldwide.”
For years, some experts have warned that short-term shareholder interests have dwarfed prudent management by making companies save on stockpiling.
“The more we become interdependent, the more exposed we are to the fragility that arises, which is always unpredictable,” said Ian Goldin, Professor of Globalization at Oxford University. “Nobody could predict that a ship would go aground in the middle of the canal, like nobody predicted where the pandemic would come from. Just like we can’t predict the next cyber attack or the next financial crisis, but we know it will happen. “
The catastrophe of the moment when engineers are working to extract a huge ship from the Suez Canal has more than 100 ships bogged down at both ends, waiting for a clear passage. Some carry oil – one reason energy prices rose on Wednesday even though they pulled back on Thursday. Some wear electronics, clothing, and exercise equipment.
None of them get where they should go until the traditional ship is freed. The stalemate holds up $ 9.6 billion worth of goods every day, according to a Bloomberg analysis.
Since its use in the 1950s, the shipping container itself has revolutionized world trade. As a standard size container that can be quickly relocated on rails and trucks, it has significantly reduced the time it takes to move goods from one location to another.
Exponential increases in the number of containers that can be stacked on a single ship have effectively continued to shrink the globe. According to Allianz Global Corporate and Specialty, a marine insurance company, capacity has increased 1,500 percent over the past half century and nearly doubled in the last decade alone.
These advances in commerce have resulted in sophisticated and highly efficient forms of specialization, with car factories in the north of England relying on parts from across Europe and Asia. The rise of the container ship has increased the availability of consumer goods and lowered prices.
However, the same advances have created weaknesses, and the disruption on the Suez Canal – the passage for about a tenth of world trade – has exacerbated the strain on the shipping industry, which has been overwhelmed by the pandemic and its reorganization of world trade.
As the Americans struggled with bans, they ordered large quantities of factory goods from Asia: exercise bikes to make up for gym closures; Printers and computer monitors to turn bedrooms into offices; Baking utensils and toys for the entertainment of children cooped up at home.
The surge in orders has exhausted the supply of containers in ports in China. The cost of shipping a container from Asia to North America has more than doubled since November. And in ports from Los Angeles to Seattle, unloading of these containers has been slowed as dockers and truck drivers were hit by Covid-19 or forced to stay home to look after children who are out of school.
Delays in unloading delays in loading the next shipment. Agricultural exporters in the American Midwest are struggling to secure containers for shipping soybeans and grains to food processors and animal feed suppliers in Southeast Asia.
This situation has persisted for four months and has shown few signs of relaxation. North American retailers have been feverishly replenishing depleted inventories and straining shipping lines on transpacific routes during the normally weak season.
The blockage of the Suez Canal effectively removes more containers from traffic. The question is how long will that take.
Christian Roeloffs, CEO of xChange, a shipping consultant in Hamburg, estimated that two weeks could strain up to a quarter of the container supply in European ports.
“Given the current shortage of containers, only the processing time for the ships is increased,” said Roeloffs.
According to Sea-Intelligence, a research company in Copenhagen, three quarters of all container ships sailing from Asia to Europe arrived at the end of February. Even a few days of disturbance in Suez could exacerbate this situation.
If the Suez stayed clogged for more than a few days, the stakes would go up dramatically. Ships now stuck in the canal will find it difficult to turn around and pursue other routes due to the narrowness of the canal.
Those now on their way to Suez can choose to head south and navigate Africa, adding weeks to their travels and burning extra fuel – costs that will ultimately be borne by consumers.
Whenever ships pass through the Channel again, they are likely to arrive at busy ports all of a sudden, forcing many to wait before they can unload – an added delay.
“This could make a really bad crisis worse,” said Alan Murphy, founder of Sea-Intelligence.