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The Suez Canal blockage: An accident with lasting ramifications

Retail Sector discusses the immediate and potential impacts of the Suez Canal blockage on retailers both large and small, forecasting potential outcomes on global supply chain strategies

Some six days the Ever Given spent blocking the Suez Canal before it was refloated on 29 March, with the Suez Canal Authority (SCA) claiming that the global shipping route was once again “operating in full capacity” on 31 March. However, the fallout and impacts of the week-long incident on retailers across the world have only just been set in motion. Johnathan Foster, principal consultant at specialist procurement and supply chain consultancy Proxima, says that “the full impact of the Suez fiasco is yet to be felt”. 

A day before the Ever Given, a ship carrying 20,000 containers owned by Taiwanese transport company Evergreen Marine, was freed, 369 ships were stuck in the backlog. Moreover, with 12% of global trade reportedly passing through the canal every day, data from Lloyd’s List found that the blockage was halting £7bn of daily trade, leading many to question the true extent of impacts felt by retailers across the globe – especially those operating Just in Time (JiT) supply-side strategies.

As of yet, many large individual retailers are pressing that their operations have not been vastly impacted through the supply chain disruption. “We estimate that the incident in the Suez Canal will have a minimum impact on the availability of our Ikea products,” a spokesperson for Ikea, who has been named as one of the larger firms involved in the immediate hold up, says.

“We have a small number of containers on the vessel blocking the Suez Canal,” adds a spokesperson for Dixons Carphone, another brand said to be caught in the firing line. “However, we don’t believe this will cause any meaningful disruption to our stock levels or business operations.” The initial impact on larger firms operating both in the UK and abroad, then, is supposedly a subdued blip in the global supply chain mechanism.

Yet, for Steven Barrett, head of key accounts at international supply chain company Advanced Supply Chain Group, the full impacts are just around the corner. He says: “Retailers will be feeling the after-effects for some months to come as sailing schedules are impacted with delays and some sailings being removed entirely due to the backlog and displaced vessels. 

“This will create uncertainty in supply chains globally as shipping lines have already begun to reduce allocations so retailers will struggle to fulfil orders and replenish stock.” Foster echoes this notion, claiming that “retailers will face inventory delays for several weeks” while supply chains experience a “bull whip reaction to the delays”.

While large retailers continue to publicly brush off both the immediate and potential effects of the Suez Canal fiasco, smaller groups are perhaps taking a more realist approach. Kathryn Shuttleworth, managing director at The Parently Group, had “eleven containers filled with school uniform and kids wellies” on the Ever Given, with one more on a ship “just behind”. 

Yet, Shuttleworth notes that due to the company not deciding against operating a Just in Time (JiT) supply chain strategies, a stock buffer limited any pressing problems. “The more significant impact is on what happens now,” she says. “The shipping world was already in a state of flux due to Covid-19 but now there are lots of difficulties with container availability around the world, with factories struggling to get stock out and on ships. 

“Ports are going to hit real bottlenecks in the coming weeks and months, and we are expecting delays on the goods that weren’t even on the water when the ship blocked the Suez. This incident may lead to higher stockholding or near-shoring of production, but we will have to wait and see how bad it gets, and how much costs increase, before we see which way it goes.”

While the Suez Canal blockage has evidently highlighted potential logistical issues with the JiT model, the reality for Barrett is that “it’s nearly impossible to predict and manage this type of situation”. How then, can retailers on both ends of the size scale, such as Ikea, Dixons Carphone, and The Parently Group, manage their supply chains to mitigate future problems?

There are a number of ways that retailers can strategically collaborate with their carriers to lock in capacity,” says Foster. “This could be building additional lead times into their supply chains, developing supply contingency plans if there are not some already in place, or employing additional staff to help handle the current volatile nature of import volumes. We also advise retailers to treat inventory volumes as a continuity of supply ‘insurance policy’. 

“It is not if there will be further disruptions, but when, where, and how vast the impact will be.  Creating solid processes and data intelligence will also help alleviate these disruptions.” Moving forwards, Foster expects supply chains to “become more strategic”. He adds that this will lead to a “diversification” of supply options, moving away from traditional regional supply footprint strategies. Foster finalises that these changes are “likely to lead to increased investment and a heightened focus on new technologies supporting supply chain goals.”

There is no denying that the Suez Canal blockage was an unpredictable accident that is extremely difficult to account for in retailers’ supply chain strategies. However, it has highlighted the fragility of increasing globalisation – and is by no means a finished event. 

Moreover, with supply-side consultants and strategists forecasting and suggesting changes in approaches to global supply chain strategies, the outcomes of those six days that the Ever Given halted the Suez Canal may be felt for months and years to come in the form of retailers’ supply chain solutions.

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