Logistics Lessons From the Suez Canal Fiasco

Published on May 8, 2021

For six days, one of the world’s largest container ships was stuck in the Suez Canal. The Ever Given at 1,300 feet is nearly as long as the Empire State Building and stores more than 20,000 containers.

Starting March 23, the immovable craft blocked 12% of the global trade, an estimated $9 billion in goods every day, or $400 million every hour. The nautical mishap had a worldwide impact on when items could be delivered and how much it would cost, regardless if the container ship was carrying your company’s products or not.

Rising Tides and Prices

The swell from the Ever Given also caused the tides to rise on energy prices and freight rates. Experts say the situation exacerbated supply chains already struggling from other cost factors, such as the container shortage brought on by increased sales during the COVID-19 outbreak.

“We might celebrate the success of releasing the ship and unblocking the Suez Canal, but that’s not the end of the story here,” said Douglas Kent, Association for Supply Chain Management executive. “[Prices will] almost certainly rise, as the world’s interconnected supply chain continue to be strained. This conveyor belt of the maritime transportation system is what’s moves [products] all around, and we took it largely for granted until it suddenly stopped. … There’s going to be a lot of these second-, third-order effects.”

Just-in-time, now just means late.

More companies are now using “just-in-time” manufacturing. The practice limits costs and boosts profits because money isn’t wasted stockpiling extra goods in warehouses. Businesses use the internet to get what they need when they need it.

This approach works until it doesn’t, according to a New York Times analysis. For instance, the reliance on just-in-time manufacturing resulted in the shortage of protective gear at the beginning of the pandemic.

When ships finally were able to move through the Suez Canal, they arrived at busy ports all at once, forcing many to wait to unload — an additional delay.

One shipping consultant suggests this is a time for executives to consider shortening their supply chains to withstand future disruptions. “Higher labor costs can be offset by lowering the amount of floating inventory, decreasing lead times and taking advantage of all the cost savings resulting from a lean management system,” said Ken Eakin, consultant and author of “Office Lean.”

Choosing Shipmates

Your company may be hyper-local, but the supply chain has become completely global. Business leaders should recognize the growth of their company is directly tied to its supply chain. Companies with really high-performing supply chains achieve a better than average growth about 80% of the time. Businesses with inferior supply chains only achieve average growth about 8% of the time.

Procurement leaders should choose a partner with a breadth of experience to offer a variety of options. A common mistake is seeking a company that is going to tell them what to do.

A supply chain partner should tell you your choices, what those choices will cost, how it will work and the actual time of delivery. You should ask the following questions, “What experience do we want? What’s it worth to us? What are we willing to pay now to get it?”

Take Technology Aboard

A 2018 Gartner report found only 22% of companies use an advanced state of digital supply chain management, while 34% had a defined implementation plan for tech-driven Supply Chain Management (SCM), and 44% were in the process of determining an SCM plan.

Some technologies to consider include: warehouse management systems; mobile labeling and receiving; lot control automation; on-demand packaging systems; shopping cart technologies; picking systems; and transportation logistics system.

Not every company needs all these technologies. Be clear about what your business uniquely requires to compete.

Seeing Through The Fog

Be sure to ask in-depth questions about how a potential SCM partner plans to create maximum visibility and transparency for your unique needs and requirements. Find out whether the company can provide real-time tracking capabilities. Without full transparency, you are blind to potential problems, possible cost-savings through new efficiencies, as well as the broader picture of how your SCM partner can help you build your business.

Here are four critical areas you should consider with your partner to be prepared:

  1. Vet all levels of the supply chain. Make sure third-party contractors and suppliers have the appropriate certifications, training and experience.
  2. Assess risks through ongoing audits.
  3. Monitor whether suppliers have the proper insurance in case something goes wrong.
  4. Create a Business Continuity Plan that can withstand a pandemic, natural disaster or a standstill at the Suez Canal.

No two companies are the same, so don’t use an off-the-shelf, one-size-fits-all solution. Many SCM companies offer a “menu” of services rather than an “all in” approach. Clearly understand your company’s unique strengths and weaknesses, then seek an SCM partner who can provide exactly what your business needs. Think of it as filling the gaps in satisfying your customers.

While choosing a partner, find out if their resources can help grow your company’s buying leverage. Ask how they plan to coordinate across their suppliers and vendors to get your job done in the most affordable way.

Consumers demand more every day, which means you have every right to demand more of your SCM partner. These key four areas can help you to identify the best partner and guarantee smooth sailing ahead.

Casey Adams is a contributor to Grit Daily News and the President at Visible Supply Chain Management, the industry leader in shipping and fulfillment services for supply chain management. During this role, he has escalated Visible’s growth trajectory— increasing market value by 400%—all without tapping the well of private equity and with minimal bank funding. Casey began work at Pro Star (now Visible Supply Chain Management) as inside council in 2011 and became President in 2013. Casey has enjoyed helping clients and watching the business grow by keeping his perspective fresh and strategies unique. Casey appreciates the importance of teamwork, and firmly believes that working collectively has a more substantial impact than going it alone. Adams received his Bachelor of Science in economics from Brigham Young University and later his law degree from the University of Utah. Adams has been featured in articles by Forbes, American Express.com, Utah Business Magazine, and Fox 13 News in Salt Lake City, Utah.

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