Assignment Task

The Issue The 200,000-ton container ship that blocked Egypt’s Suez Canal for six days in March 2021 brought to a halt one of the world’s busiest waterways and left more than 400 ships stranded. The Empire State Building-sized vessel, named Ever Given, ran aground in a single-lane stretch of the canal that connects the Mediterranean to the Red Sea. Built in 1869, the Suez Canal is the shortest maritime route from Asia to Europe.

High winds and a sand storm were early explanations given for the blockage; however, Egypt’s Suez Canal Authority chairman said weather conditions “were not the main reasons” and “there may have been technical or human reasons,” the BBC reported. The waterway carries over 10% of global trade, including 7% of the world’s oil. The Ever Given blockage was yet another wake-up call for companies whose business models rely on supply chains with little room for error, as Milken Institute Chief Economist William Lee told the Associated Press.

“This is a warning about how vulnerable our supply chains are and how the just-in-time inventory techniques that have been so popular have to be rethought,” he continued.

Suez Canal Authority chief Osama Rabie said that the canal’s revenues lost USD 14–15 million each day it was blocked. A study by German insurer Allianz showed that the blockage could cost global trade USD 6–10 billion per week. The incident is the latest warning to retailers that “just-in-time” supply chain models have backfired during the pandemic. As New York Times reporter Peter S. Goodman describes, in recent decades, management experts have championed “just-in-time” manufacturing to cut costs and increase profits. Instead of spending money filling warehouses with excess product, that money “can be given to shareholders in the form of dividends,” he writes.

But over the last year, with factories shut down and trade restrictions put in place, shortages of pharmaceuticals, face masks, and other products highlighted the weaknesses of those strategies. A report by Capgemini Research Institute found that two-thirds of retailers plan to overhaul their supply chain strategy over the next three years. While the disruption from the Suez blockage was not as dramatic as the pandemic shortages, it was yet another reminder of the global supply chain shortcomings.

Questions

1. What have both the pandemic and the Suez Canal blockage revealed about vulnerabilities in the “just-in-time” technique?

2. How do you think these vulnerabilities ought to be addressed?

3. In a post-pandemic world, do you think companies need to be better prepared in general for continued disruptions?