Guide to Improving Supply Chain Resilience after the Blocked Suez Canal Incident

The continuing importance of the Suez Canal

The Suez Canal was completed in 1869, a once-unrivalled feat of modern engineering. Linking the Mediterranean Sea to the Red Sea, the passage continues to provide a pivotal maritime route between Europe and Asia. 

The Suez Canal drastically cuts down the time and distance it takes to sail between the Mediterranean Sea and Indian and Pacific Oceans; where ships taking the longer Cape route, around the tip of Africa, travel a total distance of 11,720 nautical miles from Rotterdam to Singapore, they only take 8,440 nautical miles using the Suez Canal as a shortcutⁱ.

The Canal itself has seen numerous expansions throughout its 150-plus-year history. The most recent, the New Suez Canal completed in 2015, expanded the Ballal Bypass by 251 metres to an official length of 312 metres wideⁱⁱ. The purpose of these projects is to update the waterway to the realities of modern shipping.

Indeed, in recent history, container ships have been getting bigger and bigger – these larger container ships offer important economies of scale to shippers in the form of greater efficiency in transporting goods. Since the 1960s, container-carrying capacity has ballooned by almost 1,500 percentⁱⁱⁱ. Modern ships keep growing – almost exponentially. According to findings from Allianz Global Corporate and Specialty (AGCS), the largest ships were around 21,400 TEU in 2017iv. Just two years later, ships were being built in the 24,000-25,000 TEU range^v. Some of the largest container ships today measure nearly 400 metres in length and over 30 metres in depth^vi. 

The Ever Given incident and its economic impact

Ever Given, for one, is among this vaunted one percent of large container ships. On its passage through the Suez Canal in March 2021, the ship got caught in a sandstorm, ran aground, turned sideways. For nearly a week, the ship was unable to free itself, so narrow was the waterway at the point it ran aground. The larger effect, though, was to block the entire Canal from passage on either side. 

As the Canal remained blocked, a queue of hundreds of ships lined up to pass. Meanwhile, a painstaking process began to salvage and refloat the stuck ship. Eventually, the ship was freed; the Suez Canal reopened for passage. 

Ever Given, however, both its crew and vessel, has been seized, impounded by Egyptian authorities until a compensation of USD 900 million is paid^vii. That figure from the Suez Canal Authority, the public agency that runs the Canal, represents an estimate of losses incurred by the grounded vessel as well as flotation and maintenance costs^viii. 

Estimates of the broader cost of the incident, of course, vary. According to data from Lloyd’s List, an estimated USD 400 million in goods idled every hour Ever Given was stuck. Some vessels had to be rerouted to avoid the Suez Canal entirely, adding more than a week to their journey time. Data places the cumulative economic hit of the incident to somewhere in the range of USD 5.1 billion per day in westward traffic and USD 4.5 billion per day in eastward traffic. 

The Suez Canal Authority, for its part, contends that it lost daily revenues of between USD 14 and 15 million; passage through the Suez Canal is also a key contributor to Egypt’s overall GDP^ix.

On the whole, some analysts suggest that the incident itself could have shaved off as much as 0.4 percent in annual trade growth^x, with the Wall Street Journal reporting a 47 percent jump in the cost of renting some vessels to ship cargo to and from Asia^xi. 

The perilous state of today’s supply chains

The Ever Given incident illustrates anew the perilous state of our modern supply chains, as the risk climate for maritime trade gets darker. Congestion at ports, for instance, is ballooning costs for container lines, as their ships have to wait at major ports (particularly in the western U.S.) due to outsized demand^xii. 

Why does it matter? Maritime trade itself represents the overwhelming majority of global trade. Around 80 percent of global trade by volume and more than 70 percent of global trade by value are carried by sea and handled in ports around the world, which suffer their own vulnerabilities^xiii.

Sure, the Suez Canal route might only account for one piece of this bustling maritime traffic. That piece is quite important, though; nearly 12 percent of global trade passes through the Canal on a daily basis, including one million barrels of oil and around eight percent of liquefied natural gas^xiv.

Add to that, the Ever Given incident follows a number of major supply chain crises, such as Brexit and the COVID-19 pandemic. These incidents have all laid bare the risks inherent in the proliferation of just-in-time networks. Indeed, companies have sought to increase inventory efficiency, eliminate waste, and lower costs by receiving goods only as needed for production. What they’ve sacrificed in the process, however, is a large measure of visibility. 

For context, surveys from the years just before COVID-19 found that only six percent of companies had complete visibility over their supply chains^xv. On the other hand, seven in ten companies admitted that their supply chains were either very or extremely comple^xxvi.

Measures to improve supply-chain resilience

How can this change, and companies achieve visibility over their complex supply chains? The following measures should help to improve supply-chain resilience: 

• Commit to building a crisis scenario for supply chain disruptions. The best place to start is to develop a crisis management playbook for the supply chain disruption scenario. But aren’t these crisis scenarios reserved for risks that are likely to develop into incidents? We’d say that by now supply chain disruptions meet that threshold – and then some.
  
  So, why start now? Well, it’s best to start when the incident is still top of mind. For context, supply chain volatility didn’t just begin with the COVID-19 crisis and accelerate with the Ever Given incident – there was ample evidence of supply chain risk beforehand, going back at least to the SARS crisis in the early 2000s. However, going into the present pandemic, a mere 28.5 percent of companies had plans that covered supply chain issues, according to BCI^xvii. 
• Perform due diligence on your supply chain. What, then, should the effort look like? The short answer is it depends on a number of factors: your location and type of business, its exposure to global trading trends, etc. The best way to go about determining what your supply chain risk looks like is performing regular due diligence exercises (i.e., quarterly, semi-annually, or annually depending on risk factors) on your entire supply chain; those findings will get fed into the supply chain disruption scenario, which will also be updated as risk changes.
• Don’t fall into this due diligence pitfall. These exercises, however, aren’t a cure-all, especially since businesses fall into one common pitfall. The interconnectedness of modern supply chains, a fact of largescale globalisation patterns, means you can’t just limit your supply chain assessment to tier-one, or “critical”, suppliers, though these are the suppliers with whom you should be developing your supply chain disruption scenario. After all, these suppliers are themselves at the mercy of their “critical” suppliers, i.e., your tier-two suppliers and beyond.
• Obtain valuable supplier information for the entire chain. During the pandemic, for instance, supply chain disruptions were exacerbated by a lack of visibility into a given company’s wider supply chain. In other words, numerous organisations couldn’t determine the locations of their tier-two suppliers and beyond; nor had they obtained or shared updated business continuity plans. As such, primary organisations didn’t know how the critical suppliers they relied on would act in the event of a supply chain disruption incident. 
  
  For improved situational awareness, those valuable pieces of information should be stored in the crisis management and business continuity technologies your company will be using during the supply chain disruption; so, too, should the results of your regular supply-chain risk assessments. 
• Improve critical crisis communications modalities with suppliers. Getting into the formalised habit of reaching out to multiple tiers of suppliers will also have the effect of improving communications during an actual crisis. Why it matters? Another supplychain crisis learning was the overall paucity of communication with suppliers, especially at the beginning of the COVID-19 pandemic^xviii. Necessarily, the lack of communication reduced situational awareness, which only improved as the pandemic lengthened in duration.
  
  This waxing and waning of communication, though, suggests an ad-hoc approach to keeping in touch with suppliers, which companies should seek to remedy. How to start: begin by pushing for regular meetings with critical suppliers as part of the broader supply-chain resilience effort. 
• Invest in the appropriate crisis management and business continuity technologies. Of course, these efforts will amount to little if there’s poor integration with the digital technologies you will be using to respond to the supply chain disruption in the first place. These technologies should be working towards the same overarching goal of improving supplychain visibility and expediting informed-decision making during a crisis. Here, some capabilities that matter are the ability to feed in news concerning potential supply-chain issues (such as early reporting of the Ever Given incident) into the app itself. 
  
  Secondly, going through the effort of developing and updating your supply chain disruption scenario doesn’t make much sense if your crisis management and business continuity solution doesn’t enable digitisation of that scenario so that it is readily available to decision makers when disruption happens. 
  
  Add to that, those digitised playbooks should also have provisions for mobilising decision makers and crisis responders, and the app itself should have the capability to activate those actors, disseminate further disruptionrelated tasks, as well as track disruption-related decisions. In other words, the apps must act as a virtual nerve centre, especially while restrictions on in-person meeting still apply. Other relevant capabilities include:
  • Identify, assess, and manage the risks of disruption caused by the relevant disruption to products and suppliers
  
  • Track supply chain and supplier dependencies
  
  • Track parts or materials at risk of supply disruption
  
  • Record and manage actions and decisions made in response to those risks, to address or prevent blockages 

Modern supply chains are complex and intricate. With points of failure like the Suez Canal existing everywhere, some might call them brittle. Many organisations, however, have made the financial decision to throw caution to the wind, prioritising efficiency. 

But overly financialised decisions have costs of their own. The price, here, is reduced transparency, visibility, and agility.

Businesses don’t have to keep paying that price, sailing blind into the inevitable, next supply-chain crisis. Instead, committing to visibility-promoting strategies, such as scenario planning, due-diligence exercises, coordinated partner communication, and appropriate business continuity and crisis management technology investments, like Noggin, can help you reduce the risk of disruption, while achieving supply chain resilience.

Citations

i     Mike King, Lloyd’s Loading List: More carriers turn to the Cape to avoid Suez. Available at https://www.lloydsloadinglist.com/freight-directory/news/ More-carriers-turn-to-the-Cape-to-avoid Suez/76541.htm#.YIG6MGRKj9E.

ii     Vickie Oliphant, Express: How wide is the Suez Canal in miles and how long is it? Ever Given marks 6th day stranded. Available at https://www.express.co.uk/news/world/1415944/How-wide-is-the-Suez Canal-in-miles-How-long-is-suez-canal-evg#:~:text=How%20wide%20is%20the%20Suez%20Canal%20in%20miles%3F,metres%20wide%20at%20the%20surface.

iii     Hellenic Shipping News: Container ships: is bigger always better? Available at https://www.hellenicshippingnews.com/container-ships-is-bigger-alwaysbetter/.

iv     Ibid.

v     Ibid.

vi     Marine Insight: Top 10 World’s Largest Container Ships In 2021. Available at https://www.marineinsight.com/know-more/top-10-worlds-largestcontainer-ships-in-2019/.

vii     Mary-Ann Russon, BBC: The cost of the Suez Canal blockage. Available at https://www.bbc.com/news/business-56559073#:~:text=Prior%20to%20 the%20pandemic%2C%20trade,along%20the%20waterway%20each%20day.

viii     Ibid.

ix     Ibid.

x     Ibid.

xi     Ibid.

xii     Ibid.

xiii     UNCTAD: Review of Maritime Transport 2018. Available at https://unctad.org/webflyer/review-maritime-transport-2018#:~:text=Maritime%20 transport%20is%20the%20backbone,are%20handled%20by%20ports%20worldwide.

xiv     Mary-Ann Russon, BBC: The cost of the Suez Canal blockage. Available at https://www.bbc.com/news/business-56559073#:~:text=Prior%20to%20 the%20pandemic%2C%20trade,along%20the%20waterway%20each%20day.

xv     Capital Agenda Blog: How can companies meet the challenge of supply chain disruption? Available at https://capitalagendablog.ey.com/2019/06/28/ how-can-companies-meet-the-challenge-of-supply-chain-disruption/.

xvi     Ibid.

xvii     Rachael Elliott, BCI: Covid-19: The Future of Supply Chain. Available at https://www.thebci.org/uploads/assets/7324b815-9364-47d3-9277ab4ce9aa4c0f/a3e39af5-193d-428d-b603d3cf7e600f39/BCI0007d-The-Future-of-Supply-ChainSingles-Low.pdf.

xviii    Ibid