Author: Peter S. Goodman
Source: The New York Times
Date: March 29, 2021
The shutdown of the vital waterway and its impact on trade underscore the world’s reliance on global supply chains.
LONDON — The world got another warning this week about the perils of its heavy reliance on global supply chains. As a single ship ran aground in the Suez Canal, shutting down traffic in both directions, international commerce confronted a monumental traffic jam with potentially grave consequences.
The troubled craft is not just any vessel. The Ever Given is one of the world’s largest container ships, with space for 20,000 metal boxes carrying goods across the sea. And the Suez Canal is not just any waterway. It is a vital channel linking the factories of Asia to the affluent customers of Europe, as well as a major conduit for oil.
The fact that one mishap could sow fresh chaos from Los Angeles to Rotterdam to Shanghai underscored the extent to which modern commerce has come to revolve around truly global supply chains.
In recent decades, management experts and consulting firms have championed so-called just-in-time manufacturing to limit costs and boost profits. Rather than waste money stockpiling extra goods in warehouses, companies can depend on the magic of the internet and the global shipping industry to summon what they need as they need it.
The embrace of this idea has delivered no less than a revolution to major industries — automotive and medical device manufacturing, retailing, pharmaceuticals and more. It has also yielded a bonanza for corporate executives and other shareholders: Money not spent filling warehouses with unneeded auto parts is, at least in part, money that can be given to shareholders in the form of dividends.
Yet, as in everything in life, overdoing a good thing can bring danger.
An excessive reliance on just-in-time manufacturing helps explain how medical staff from Indiana to Italy found themselves attending to Covid-19 patients during the first wave of the pandemic without adequate protective gear like masks and gowns.
Health care systems — many under the control of profit-making companies answerable to shareholders — assumed that they could depend on the web and the global shipping industry to deliver what they needed in real time. That proved a deadly miscalculation.
The same dependence explains how Amazon failed to provide adequate stocks of masks and gloves to its warehouse workers in the United States in the first months of the pandemic.
“We’ve placed purchase orders for millions of face masks we want to give to our employees and contractors who cannot work from home, but very few of those orders have been filled,” Amazon’s founder, Jeff Bezos, declared in a letter to all employees last March. “Masks remain in short supply globally.”
Some experts have warned for years that short-term shareholder interests have eclipsed prudent management in prompting companies to skimp on stockpiling goods.
“As we become more interdependent, we are even more subject to the fragilities that arise, and they are always unpredictable,” said Ian Goldin, a professor of globalization at Oxford University. “No one could predict a ship going aground in the middle of the canal, just like no one predicted where the pandemic would come from. Just like we can’t predict the next cyberattack, or the next financial crisis, but we know it’s going to happen.”
The disaster of the moment, in which engineers work to extract an enormous vessel from the Suez Canal, has left more than 100 vessels stuck at either end awaiting clear passage. Some are carrying oil — a reason that energy prices rose on Wednesday, though they pulled back on Thursday. Some are carrying electronics, and clothing, and exercise equipment.
None of them are getting where they are supposed to until the waylaid ship is freed. Each day the stalemate continues holds up goods worth $9.6 billion, according to a Bloomberg analysis.
Ever since its deployment in the 1950s, the shipping container has itself revolutionized global trade. As a standard-size receptacle that can be quickly plunked onto rail lines and trucks, it has sharply reduced the time needed to move goods from one place to another.
Exponential increases in how many containers may be piled atop a single ship have effectively shrunk the globe further. Capacity has increased 1,500 percent over the last half-century, and has nearly doubled over the last decade alone, according to Allianz Global Corporate and Specialty, a shipping insurance company.
These advances in trade have yielded sophisticated and highly efficient forms of specialization, with auto factories in the north of England relying on parts from across Europe and Asia. The rise of the container ship has expanded the availability of consumer goods and lowered prices.
But these same advances have yielded vulnerabilities, and the disruption at the Suez Canal — the passageway for roughly one-tenth of the world’s trade — has intensified the strains on the shipping industry, which has been overwhelmed by the pandemic and its reordering of world trade.
As Americans have contended with lockdowns, they have ordered vast quantities of factory goods from Asia: exercise bikes to compensate for the closure of gyms; printers and computer monitors to turn bedrooms into offices; baking equipment and toys to entertain children cooped up at home.
The surge of orders has exhausted the supply of containers at ports in China. The cost of shipping a container from Asia to North America has more than doubled since November. And at ports from Los Angeles to Seattle, the unloading of those containers has been slowed as dockworkers and truck drivers have been struck by Covid-19 or forced to stay home to attend to children who are out of school.
Delays in unloading spell delays in loading the next shipment. Agricultural exporters in the American Midwest have struggled to secure containers to send soybeans and grains to food processors and animal feed suppliers in Southeast Asia.
This situation has held for four months, while showing few signs of easing. Retailers in North America have been frantically restocking depleted inventories, putting a strain on shipping companies in what is normally the slack season on trans-Pacific routes.
The blockage of the Suez Canal effectively sidelines more containers. The question is how long this lasts.
Two weeks could strand as much as one-fourth of the supply of containers that would normally be in European ports, estimated Christian Roeloffs, chief executive officer of xChange, a shipping consultant in Hamburg, Germany.
“Considering the current container shortage, it just increases the turnaround time for the ships,” Mr. Roeloffs said.
Three-fourths of all container ships traveling from Asia to Europe arrived late in February, according to Sea-Intelligence, a research company in Copenhagen. Even a few days of disruption in the Suez could exacerbate that situation.
If the Suez remains clogged for more than a few days, the stakes would rise drastically. Ships now stuck in the canal will find it difficult to turn around and pursue other routes given the narrowness of the channel.
Those now en route to the Suez may opt to head south and navigate around Africa, adding weeks to their journeys and burning additional fuel — a cost ultimately borne by consumers.
Whenever ships again move through the canal, they are likely to arrive at busy ports all at once, forcing many to wait before they can unload — an additional delay.
“This could make a really bad crisis even worse,” said Alan Murphy, the founder of Sea-Intelligence.