The Suez Canal blockage highlights the delicacy of global supply chains

By Harry O’Sullivan

As a resident of the Isle of Wight I am no stranger to large cargo ships; how these large metallic beasts connect the Port of Southampton to the rest of the world has always fascinated me. Whilst most consumers are aware of the existence of such vessels, what these ships carry and how their contents affect almost every aspect of daily life is usually overlooked.

On the 23rd March 2021 a 400m long vessel named Ever Given was caught by a gust of wind causing the steering gear aboard the ship to malfunction. This resulted in the Golden-Class container vessel becoming stuck between either bank, blocking the Suez Canal.

Since March last year, we have witnessed several issues globally relating to supply chain issues. However, for clarity, issues such as the shortage of toilet paper in UK supermarkets in the early days of national lockdown are unrelated to supply chains as this was the result of a sharp increase in consumer demand that cannot be mitigated against due to their unpredictability.

The global manufacturing industry is dependent upon a system that is vulnerable to a wide range of both physical and human risks.

The fundamental issues related to current supply chains is that they are based on a ‘just-in-time’ approach meaning important components in many industries only arrive with very small margins for error. As I see it, the global manufacturing industry is dependent upon a system that is vulnerable to a wide range of both physical and human risks, the threat of which will only increase with time.

An increase of 20% in the share price of Hyundai Merchant Marine, the world’s 8th largest container line, between the 23rd and 25th March 2021 as shipping stocks enjoyed a surge in demand, is testament to how manufacturers are fundamentally dependent upon shipping companies.

In February 2021, many semiconductor manufacturers in Texas were forced to close following winter storms that forced local energy providers to prioritise households and hospitals. The closure of such plants, which usually operate for 24 hours a day, has caused a large shortage in semiconductors around the world and has led to car manufacturers such as Volkswagen and General Motors curbing their production. Further, Samsung has reported that the shortage is likely to affect the entire industry to which semiconductors are a required component and may affect the global recovery from the coronavirus pandemic.

I believe there is substantial reason for the largest manufacturers in the world to revisit how they obtain their components and materials.

A further threat to supply chains lies in political and geopolitical tensions. It is no secret that the China-America tensions are putting large amounts of strain on all aspects of global trade and this is certainly reflecting on the availability of raw materials. Obviously, the risks posed by natural, human, and political factors are unavoidable, therefore I believe there is substantial reason for the largest manufacturers in the world to revisit how they obtain their components and materials or, more specifically, when they do.

Possible solutions are diversifying a company’s supply base and improving the interchangeability of vital components to products, alternatively increasing safety stock supplies and intermediate inventory is certainly an option and one that would have benefited the UK in the first weeks of the pandemic in relation to the PPE crisis. Whilst holding safety stock is expensive, I believe the insurance it provides against the cost of the delays such as those experienced recently makes it worthwhile.

The transformation to more resilient supply chains is one that would be difficult and expensive but in the long-term, I believe the benefits and security it provides manufacturers and hence consumers outweigh the negative impacts and can still provide room for efficiency.

Image: Ever Given – Suez Canal via Flickr

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