It has been a string of disruptions for global supply chains. A Texas freeze that closed the world’s largest petrochemical plants. A worldwide shortage of semiconductors. A fire in Japan at one of the world’s largest auto chip makers. And now a ship grounding in the Suez Canal, closing off traffic in both directions.
Meanwhile, the U.S. economy is recovering rapidly and seeing its fastest expansion in over 30 years, writes The Wall Street Journal (March 26, 2021). This is increasing pressure on the globe-spanning supply chains that multinationals rely on to make everything from bikes to furniture. (It has been months since my local Wal-Mart has been able to stock adult-sized bicycles, by the way).
The Suez Canal is a vital trade route for tankers carrying oil and natural gas, along with container ships moving manufactured goods such as clothing, electronics and heavy machinery from Asia to Europe and the other way around. Around 19,000 vessels crossed the Suez in 2020, with some 39 large cargo ships transiting daily. There are currently 70 northbound ships stuck, outside the canal, along with 79 southbound ships.
Operators occasionally divert ships from the canal to the Cape of Good Hope around the southern tip of Africa to avoid bottlenecks, but such sailings take 2 weeks longer and add $450,000 in costs per voyage.
The Ever Given, sailing from China to Rotterdam with 20,000 containers on board, got stuck in the narrow 120 mile canal earlier this week. Facing high winds, the bow of the ship became wedged deep into one side of the canal, requiring dredging. The ship needs to be lightened by taking off fuel, ballast water and, possibly, a portion of its container cargo. With no cranes high enough along this stretch of canal, helicopters are the only option.
About 55,000 containers are shipped daily from Asia to Europe, meaning massive port congestions when the canal is finally cleared.
Classroom discussion questions:
- What technique in Supplement 11 of your Heizer/Render/Munson text can be used to deal with such supply chain risks?
- Table 11.3 lists 10 risks to supply chains. which apply to today’s shortages?