What A Stuck Ship in the Suez Canal Teaches Us About Supply Chain Risks

April 28, 2021 5 mins

What A Stuck Ship in the Suez Canal Teaches Us About Supply Chain Risks

The Suez Canal blockage highlighted the importance of businesses understanding their supply chains and finding weak links to reduce risks.

Key Takeaways

The Suez Canal is a crucial pinch point along global supply chains, and the Ever Given incident shows how necessary it is for organizations to understand their supply chains.
Disruptions in logistics systems can lead to reputational damage, in addition to immediate impacts on revenue and profit.
Businesses should identify their most valuable products, important suppliers, and potential pinch points in the supply chain, and explore alternatives.

The Story

Before late March 2021, the Suez Canal probably wasn’t top of most people’s news agendas. That changed when the massive container ship the Ever Given ran aground in the canal March 23, blocking shipping traffic for nearly a week.

With roughly 90 percent of the world’s goods shipped by sea, the Suez Canal is one of the most crucial pinch points along global supply chains. With the Ever Given, carrying 20,000 containers and blocking the canal, thousands of ships packed with oil and goods were stuck in holding patterns in the Mediterranean and Red seas while an international rescue mission tried to refloat the ship.

With global trade already challenged by the COVID-19 pandemic, the Ever Given incident shows us again how necessary it is for organizations to understand their supply chains, find weak links and take steps to reduce the risks.

“If you look at shipping, people sit at home and click a button on their computer and get goods delivered to their house. They generally have no idea how they get there,” says Chris Bhatt, chief commercial officer, Global Marine, at Aon. “It’s only when something like this goes wrong you realize how fragile the global supply chains are. And it’s not that the vessel was too big or the quantity of vessels is too large. It’s just a fact that the supply chain is stretched, incredibly stretched.”

90%

With roughly 90 percent of the world’s goods shipped by sea, the Suez Canal is one of the most crucial pinch points along global supply chains.

If you look at shipping, people sit at home and click a button on their computer and get goods delivered to their house. They generally have no idea how they get there.

Chris Bhatt

Chief Commercial Officer of Transportation and Logistics, Global

Why it Matters

The Ever Given blockage meant that tens of thousands of containers of goods would be delayed in reaching their destinations, inconveniencing businesses and consumers waiting for those items — and affecting the companies that produced them. “A whole lot of people have probably been trying to buy appliances for their new kitchens and now they’re not going to be delivered for a while,” says Bhatt.

And, notes Richard Waterer, managing director of EMEA, Commercial Risk Solutions, at Aon, it’s not uncommon for multiple events that disrupt supply chains to occur simultaneously, much as what the world is experiencing now with the pandemic, the Suez Canal delays, the fire at a massive automobile chip manufacturer in Japan and Brexit.

“It’s quite possible that certain providers of products are going to be caught up in more than one of those events concurrently,” Waterer says. “These aren’t events that wait for each other to finish and operate in a linear way.”
And, in addition to the disruption of business operations, the impact of breakdowns in logistics systems raises another peril: reputation risk.

“Because consumers won’t separate the logistics from the provider of the product, the business involved could be hit twice: an immediate impact on revenue and profit, along with a loss of attraction in the future triggered by reputational damage,” says Waterer.

“As consumers we’ve all been lulled into believing that everything is a click away,” Bhatt says. “And that’s fine if that works, but it only works when that supply chain is absolutely fluid and nothing goes wrong.”

The Suez Canal blockage is the latest supply chain disruption but it won’t be the last. It falls on the businesses whose products, essential components or raw materials are on those ships to evaluate and address the risks.

“Whatever businesses are producing or manufacturing, they will have a portfolio of products, and some of those products will be more valuable than others, either because they generate more income or because they service a market that’s growing for them,” says Waterer. “If they can understand what’s driving the value of that business, they can then start to find the potential supply chain pinch points and risks around the end-to-end fulfilment of that product.”

Businesses should identify their “crown jewels,” Waterer says, and then determine the important suppliers and the points where a breakdown could negatively affect their ability to deliver products or services. Then they can ascertain how they might address the risk, whether it’s to hold more inventory, bring suppliers closer to home, explore new logistics options or other alternatives.

“We’re seeing companies start to think more strategically around the business continuity element,” says Waterer. “They’re asking, ‘If we do lose a portion of our stock, how can we fulfill the most important customer needs faster?’ That may mean relying on redundant supply, using a different route or another alternative.”