Crisis in the Suez Canal highlights global supply chain weakness

The Ever Given’s six-day grounding in one of the narrowest parts of the Suez Canal underscores the vulnerability of the world’s supply chain and the choke points that can disrupt the global economy.

The reverberations will be felt for months as consumer demand, suppressed by the Covid-19 pandemic, ramps up.

The canal, which first opened in 1869, is the main shipping artery between Asian and European seaports through which 10% of the global shipping traverses. Much of the 120-mile waterway is extremely narrow, especially for ships as long as the Empire State building is tall – 1,300 feet.

Nearly 19,000 ships navigated the canal in 2020. Without the Suez, ships would sail around the Cape of Good Hope at Africa’s southern tip, adding two weeks to the journey.

Even before strong desert crosswinds jammed Ever Given and its 20,000 containers into the canal’s banks, nearly everyone was feeling supply shortages. The pressure was on suppliers to produce more components and accelerate shipping.

The blockage impacted those awaiting Ever Given’s containers and customers for the contents on board the 420 other ships stopped in Mediterranean and Red seas. 

Even though the vessel back log was finally cleared on Easter Sunday, maritime data company Lloyd’s List estimated the blockage had affected $9.6 billion worth of cargo each day between Asia and Europe.

A key underlying problem is the fast-paced, high-tech, global economy hinges on efficient, timely and quality components deliveries. Modern manufacturing is a well-choreographed production as exacting as a fine-tuned symphonic orchestra.

Before the Boeing 737 Max was grounded for safety issues, the company was pumping out 52,737 airplanes per month. Approximately, a quarter of the commercial airplanes flying today are 737s assembled at the Renton plant.

Fuselages are fabricated in Kansas and shipped by rail across country to Renton. Their arrival is sequenced with containerized parts shipped by air, sea, rail and truck.

Boeing employs 12,000 workers at its 737 assembly plant and supports thousands of jobs across a network of 600 major suppliers. Production delays ripple across the supplier chain. Subcontractors face the same problems as Boeing as they struggle to recover from the pandemic and the grounding.

Spirit AeroSystems, Boeing’s largest supplier, dramatically cut its production levels during the Max grounding and pandemic. The downturn in demand resulted in Spirit AeroSystems cutting 8,000 employees from its commercial aviation programs – a 44% reduction – and the company closed one factory, reported.

While Boeing is starting to recover with the return to service of the 737 Max and an uptick in airline bookings, the auto industry offers a better example of the vulnerabilities of supply chain choke points.

The Ever Given carried containers of computer chips. Their delayed arrival stalled auto production worldwide.

Even though semiconductor fabricators announced multibillion dollar plant expansions, those facilities take years to build. The shortages are today primarily because of an unexpected surge in demand for higher-end personal computers amid the pandemic.

As the pandemic subsides, companies will have to modify their inventory strategies.

While stockpiling key components and non-traditional shipping may be expensive, in the end they may turn out to be less costly than idling production and losing market share because choke points get choked.

Don C. Brunell is a business analyst, writer and columnist.

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