Last month, international trade got a stark reminder of the vulnerabilities of globalization. One of the world’s largest container ships, the Ever Given, was stuck in the Suez Canal, effectively cutting off the shipping lane for almost a week. This forced several businesses around the world to deal with the crippling impact on their supply chains. It also highlighted the fragile interdependence, inherent to the global economy.
Six days, the time it took to free the ship, may seem a short time. But, given the context of hundreds of vessels stuck, waiting to make the passage, the blockage rapidly racked up worrying numbers. As per estimates, the crisis caused cost international trade a gigantic $400 million, for every hour that the Suez Canal was blocked.
The Perils of dependent Supply Chains
It is estimated that around 90% of international trade depends on sea routes. While we rarely give a second thought to how things make their way to us, the reality is that every single thing we own is likely made up of parts that have been manufactured in different parts of the world.
The Ever Given, for instance, can ferry 20,000 containers, and was carrying around 18,300, when it got stuck. Similar ships, loaded to the gills in oil and crude that power factories across the world, stood waiting in line for the canal to clear. All these delays highlighted our increased dependence on ‘Just-in-Time Manufacturing’.
In recent years, there has been a significant shift from stockpiling goods in warehouses, to relying on the magic of the internet and the global shipping industry to summon what we need. Indeed, this model has been revolutionary. Instead of spending money on warehouse storage, this model freed up funds that could be channeled towards other initiatives. The shipping industry too responded to these growing needs, with capacity on vessels increasing about 1500% in the last fifty years. But the Suez Canal incident revealed the gaping vulnerability, of such a model.
The liability of an interdependent world
The pandemic in itself has dramatically increased the demand for goods around the world. Current estimates show that freight costs have almost doubled since last November. This new disruption could result in even more port congestions – especially as unloading has had to slow down due to pandemic-induced measures – as well as equipment and capacity shortages.
Longer unloading periods translate into delays in loading the next shipment, becoming a vicious circle. The blockage of the Suez Canal offered a powerful reminder of how vital a handful of key maritime passages are, to the whole international economy. A crisis in any one of these crucial corridors – the Panama Canal, or the Strait of Malacca, or the Strait of Hormuz – could potentially cripple global markets.
In the end, the added stress will most likely be handed down to consumers, resulting in short-term inflation of prices. As the world becomes more connected, it is vital to be aware of such weaknesses. In this new decade, which is only likely to increase global interdependence, it’s even more important for world leaders to reach a consensus on diversifying strategic sea routes.
As far as businesses are concerned, we need to prepare contingency plans, particularly if our products are dependent on supply chains threading multiple continents. The Suez Canal incident has also served another important lesson to all of us – it’s time to collectively rethink the pitfalls of too much globalization, and create redundancies in our supply chains.
