The Suez and Panama Canals are among the most important sea trade routes in the world.
In 2022 alone, almost 23,900 ships transported around 1.4 billion tons of freight through the 193-kilometre-long Suez Canal. However, this important canal has once again become a bottleneck for sea freight traffic.
But, according to recent reports, more and more shipping companies have been avoiding the Suez Canal in recent weeks for fear of the increasing attacks on container ships caused by the geopolitical crisis in the Middle East. Instead of using the Suez Canal, they are instead re-routing their cargo 6,000 km further, around South Africa’s Cape of Good Hope, which leads to up to 10 days longer transportation times and higher costs.
If the situation in the Suez Canal persists for longer, bottlenecks could occur again, as they did when the container ship “Ever Green” was beached in the Suez Canal in 2021. After just a few days, closures in the Suez Canal led to a shortage of cargo space and containers, which temporarily caused prices for sea transport to skyrocket and had an impact on global trade.
For European industry, the current situation would mean that it would have to prepare for bottlenecks in Asian primary products, but also in textiles, medicines and food from the Far East.
Tesla is already the first company to report supply bottlenecks leading to an interruption in production at its plant in Gruenheide, Germany.
The pressure on the supply chain is higher than ever before. And with all the uncertainties of recent years, it is advisable to review existing processes and find out what lessons can be learned.
Better forecasting and end-to-end supply chain visibility
Accurate forecasting of unforeseen events is crucial in light of past crises. Especially when it comes to the resilience of global supply chains, acting quickly and flexibly when unexpected events occur is a top priority.
End-to-end transparency plays a central role in taking proactive measures. You need to know:
- Which materials and goods are affected?
- Which shipments are affected?
- Where are my stocks located?
- What alternative sources of supply are available for the essential resources
- What alternative means and routes of transportation can be used?
- How will the events affect planned production, customer orders and ongoing campaigns?
In recent years, it has become apparent that digital tools have become indispensable for companies to make their supply chain more flexible and respond to unexpected changes. The ongoing development of technologies such as artificial intelligence, machine learning, IoT tracking and cloud services enables companies to gain a clear competitive advantage over their rivals.
Risk minimization through diversification and a good network of relationships
The blockade of the Suez Canal in 2021 has highlighted the importance of risk minimization strategies. It also shows the need for effective risk management in unexpected situations, accurate forecasting and a good network of relationships.
Recognizing the risk is the first step in assessing the best course of action and being able to act within the shortest possible time. The following questions can help here:
- Is it possible to redirect the consignment at short notice and during transportation?
- Which alternative sources of supply can be identified and is a quick change possible?
- Are there alternative logistics types and routes?
- Is it possible to adapt production to react to unavailable materials?
A good business network should not be underestimated here. What does this look like along the entire supply chain, both with suppliers and service providers?
With a solid network, companies can find solutions to any problems that may arise more quickly together.
Building a risk-resistant supply chain
In order to remain capable of acting in the future, it is important to design the supply chain in such a way that it can withstand interruptions. This requires processes and plans that provide for the following:
- Implementation of risk management and business continuity strategies
- Geographic diversification of supply chains to reduce risks that may arise from suppliers in a particular country or region
- Multisourcing of key raw materials or strategic components to minimize dependence on a single supplier
- Identification of alternative transportation options in the event of disruptions.
- Introduction of an inventory optimization strategy across the entire company network to mitigate disruptions
- Weighing up shoring, nearshoring and onshoring strategies in production
Unforeseen disruptions, such as those caused by pandemics, climate or geopolitical reasons, will continue to occur in the future.
In this globally connected world, it is crucial that supply chains are resilient and flexible to survive in the current situation. At the same time, they should have the foresight, intelligence and transparency to thrive in the new normal.
To learn more about how supply chain leaders minimize risk and maximize opportunities with resilient supply chains, download a recent Oxford Economics study.
