Date: Monday, March 29th, 2021
The Ever Given, a 1,300-foot container vessel, is now free in the Suez Canal. After six days of blocking canal movement, resulting in a traffic jam of over 370 ships, many business leaders will breathe a sigh of relief. I say not so fast.
This event is only an exclamation point for an unprecedented bad year in logistics. Historically, the design of the global supply chain assumed available logistics. Traditional process focus is on price negotiation with an assumption on availability and reliability.
Over the past eighteen months of Covid-19, this premise failed. The cost of shipping a standard container from China to the West Coast doubled since June, while prices on the China-to-Europe route tripled since November. Yet, the story is not price. Instead, it is about availability and reliability. The impact of the Suez canal blockage will extend for many months.
As the Ever Given moves gingerly through the Suez Canal, many ships diverted to move around Africa, taking an additional nine days of transport. The Suez Canal is a significant supply chain artery carrying 13.5% of the world's freight. While the Suez Canal is a primary artery from China to Europe, plan for a global impact. Experts' views vary from four to eight months, but no one believes that the effect will be days or weeks.
Business leaders should take five steps to prepare.
1) Explore Other Forms Of Transportation. Road. Rail. Air. All modes are congested, but vary weekly. Use sensor data to track mode availability and constantly adjust logistics routing to improve reliability. Abandon traditional logistics processes to focus on the use of market signals to understand availability. Align internal teams to forecast freight needs accurately by lane.
2) Provide Visibility With a Purpose. In 2021, 45% of manufacturers are attempting to improve shipment visibility. My caution is to not just stop with visibility. Instead, design with the goal in mind. Connect outside-in and tie shipping information to allocation and Available to Promise (ATP) processes. Don’t waste your time with discussions on IT standardization. Suck up the fact that no one technology provider has the total solution. Use available cloud-based logistics solutions to defray the issue.
3) Near Shore. Redesign For Local. Use network design software to redesign based on logistics availability continually. Build this capability in the supply chain center of excellence and rationalize modes and flows at least quarterly.
4) The Issue Will Be Containers. While many companies share pictures of the ships at sea, the issue will not be the ships; it will be container availability. The shipping delays are a significant disruption for containers. (Container imbalance already a topic on Asia to United States shipments is a precursor for what is to come.) Place agents at major ocean shippers to understand not only shipping availability but container movement. Critical movement of refrigerated goods (especially pharmaceuticals)—requiring specialized equipment— will be of major concern.
5) Give Logistics Leaders A Seat At The Table. Often logistics teams operate out of a trailer in the parking lot of major corporations. Traditionally, logistics was a cost to be managed with many companies outsourcing shipping and downsizing their logistics organizations.
Expect shipping delays to last for a long time—six months to a year. Companies with strong logistics teams will drive competitive advantage. To improve reliability, give the logistics teams a seat at the table and implement new technologies to redefine logistics market-to-market (sensing logistics capabilities and aligning to market promises).
Yes, the Ever Given got stuck and is now moving. The removal of the blockage in the Suez Canal is not the news. The future headlines will be on the implications for the global supply chain that are just beginning.