These are tough times for supply chains and business leaders who depend on them. Brexit. The pandemic. Congestion at major ports. Now a 1,300-foot-long container ship is preventing hundreds of other vessels from using the Suez Canal, one of the most important waterways in the world.
If corporate officials needed to be reminded about the importance of preparing or updating their crisis management plans in these uncertain times, the headlines about the stranded ship should be enough to make their plans a top priority—whether they rely on supply chains or not.
Company executives who don’t know today how they would respond to a crisis tomorrow could make a bad situation worse when hit with a crisis, and harder to address and recover from it.
To the untrained eye, supply chains can appear to be strong, dependable, and built on a solid foundation. But as the Suez Canal crisis shows, looks are deceiving.
Chris Nicholson is the CEO of Pathmind, which uses AI to help companies optimize supply chains. He observed the global supply chain has been built “…” on top of ice shavings and toothpicks. There are weak points everywhere. Suez isn’t the only one.
“A lot of companies outsource different parts of their supply chain to be managed by others, which makes them passive consumers of other peoples’ mistakes. They don’t have the ability to react. They don’t know what their alternatives are.”
He noted that, “There are cheap manufacturers on different continents, but you pay the price in the complexity of your supply chain. It is a hidden price until Suez happen[ed], and then it is not hidden anymore.”
Nicholson predicted the current canal blockage, “…. and other events are going to push companies to look at more alternatives like onshoring and nearshoring, which will coincide with Biden’s policies to recenter the U.S. supply chain in North America.”
It did not take long for the stranded ship to create crisis situations for others.
Lukas Kinigadner is the CEO and co-founder of Anyline, a mobile data company. “Our supply chains are the arteries of industry, and in the era of same-day delivery and ‘just-in-time’ inventory, even a small blockage can cause headaches and disruptions down the line,” he observed.
The delays caused by the blockage of the Suez Canal,” … are already mounting, with oil prices already jumping, while car and computer manufacturers have raised the alarm over a worsening shortage of computer chips,” Kinigadner said.
Paul Hong is the Distinguished University Professor of global supply chain management and Asian studies at The University of Toledo’s College of Business and Innovation. “The Suez Canal is the gateway for the movement of goods between Europe and Asia—annually, more than 1.2 billion tons of cargo represents 12% of world trade. Even temporary blockage is likely to have a significant impact on multiple fronts,” he observed.
“Any delays of thousands of other bulk carriers and containers will slow down [the] circulation of consumer goods. In principle, unnecessary waiting time means wastes in the system.
‘The stranded ships in the Suez Canal not only slow down the whole supply chain process but also increase inefficacies in the system. For example, many containers are not able to be turned around to transport goods that are waiting to be loaded and shipped. This will disrupt factory production schedules,” he noted.
In any crisis, it is important to have as many alternative courses of action as possible for dealing with the emergency.
David Paulson is global vice president of Avnet, an information technology and services company. He said, “…having visibility into every end of your supply chain can help to ensure transparency and agility when unexpected disruptions do occur. This—in addition to lessons recently learned about increased product demand, carrier delays and airplane shortages from the early days of the pandemic—will benefit all shippers at a time like this.”
Make The Right Decisions
Having options is one thing. But knowing how to choose the right and best alternative is another matter.
Brett Rose is a national retail expert and founder and CEO of United National Consumer Suppliers, an international wholesale distribution company. He said, “The Suez Canal issue is just another example of how business is not a round peg in a round hole.
“Agility is paramount and the key to success. Leadership must rely on their team to solve the problem and figure out a way to get the round hole in the square peg. I have found that many organizations have more knowledge within therefore walls than leadership sometimes realizes. It is imperative to utilize a team to strategize when real-time issues like this arise that require fast thinking and a quick solution.”
Pierre Subeh is a business expert and chief operating officer of marketing technology firm X Network. He noted, “Oftentimes, supply chains are planned based on demand, and financial controllers advise to only purchase what is needed until the next planned cargo shipment.
“[But] inventory deprivation can cause a downhill dip for any business, and many cannot survive a downfall. Having no inventory gives customers an opportunity to go venture out to competitors. Making inventory decisions should never rely solely on financial controllers, those are important decisions that should be taken more seriously by executive leaders,” he advised.
The Suez Canal crisis will have short and long term consequences for weeks and months to come.
Avnet’s Paulson said a prolonged blockage of the canal could lead to temporary shortages of finished goods throughout Europe. “For the U.S. supply chain, the longer-term impacts will be increased shipping container shortages as these containers will remain stuck on ships much longer than planned.
“Given that shipping containers are already in short supply due to the spike in sea freight demand and the more complex logistics associated with this method of shipping, that further exacerbates the issue. Additionally, some shippers will begin converting sea freight to air freight in light of the situation, which will further tighten already-limited air cargo capacity and could lead to increased costs in order to secure space,” Paulson predicted.
Snowballs and Avalanches
David Macknin is a principal of risk assessment and management firm ChicagoRisk. He warned that there is a potential that the snow ball effect could turn into an avalanche if the Suez Canal crisis is not resolved quickly.“The snowball is forming now, as the more days that pass with the boat (and others that are blocked because of it). [This] one incident will inflict harm on manufacturers’ long-term planning and short-term results of business operations of companies, no matter their size or industry.
“Supply chains will be constricted, and anyone expecting payment will be waiting because the goods aren’t there. If a company imports or exports, one could expect [an] impact on margins and bottom lines.”
Macknin asked, “Can the snowball turn into an avalanche? Should a company not have some sort of trade credit insurance to protect its accounts receivable, losses could easily accrue due to companies becoming insolvent or going into default on payments. Trade credit insurance can mitigate political risk caused by such issues as currency troubles, political unrest, tariffs (and yes, a boat blocking a canal).”