Blocked Suez Canal Is Latest Reminder Of Why Businesses Need Crisis Plans

These are tough times for supply chains and the business leaders who depend on them. Brexit. The pandemic. Congestion in the main ports. Today, a 1,300-foot-long container ship is preventing hundreds of other ships from using one of the world’s most important waterways.

If business leaders were to be reminded of the importance of preparing or updating their crisis management plans in these uncertain times, the headlines about the stranded ship should be enough to make their plans a top priority, whether ‘They may or may not rely on supply chains.

Fragile situation

Chris Nicholson is the CEO of Pathmind, a company that uses AI to help companies optimize supply chains. He observed that the global supply chain had been built “…” on ice chips and toothpicks. There are weak points everywhere. Suez is not the only one.

“Many companies outsource different parts of their supply chain to be managed by others, making them passive consumers of the mistakes of others. They don’t have the capacity to react. They don’t know what their alternatives are. ”

He noted: “There are inexpensive manufacturers on different continents, but you are paying the price because of the complexity of your supply chain. It’s a hidden price ’til Suez comes along[ed], then it is no longer hidden. “

Nicholson predicted the current blockage of the channel, “… and other events will push companies to seek more alternatives like shoring and near-shore, which will coincide with Biden’s policy of refocusing the channel. American supply to North America. ”

Brutal shock

Lukas Kinigadner is the CEO and co-founder of Anyline, a mobile data company. “Our supply chains are the backbone of the industry, and in the age of same-day delivery and ‘just-in-time’ inventory, even a small blockage can cause headaches and disruption across the board. line, ”he observed.

Delays caused by the blockade of the Suez Canal, “… are already piling up, with oil prices already soaring, as automakers and IT companies have sounded the alarm over a growing shortage of chips computing, ”Kinigadner said.

Paul Hong is Professor Emeritus of Global Supply Chain Management and Asian Studies at the College of Business and Innovation, University of Toledo. “The Suez Canal is the gateway for the movement of goods between Europe and Asia – each year, more than 1.2 billion tonnes of goods represent 12% of world trade. Even a temporary blockage is likely to have a significant impact on several fronts, ”he observed.

“Any delay of thousands of other bulk carriers and containers will slow down [the] circulation of consumer goods. In principle, unnecessary waiting time means waste in the system.

“Vessels stuck in the Suez Canal not only slow down the entire supply chain process, but also increase inefficiencies in the system. For example, many containers cannot be returned to carry goods waiting to be loaded and shipped. This will disrupt the plant’s production schedules, ”he noted.

Have options

David Paulson is global vice president of Avnet, an information technology and services company. He said: “… having visibility at every end of your supply chain can help ensure transparency and agility in the event of unforeseen disruptions. This, in addition to the lessons learned recently about increasing product demand, carrier delays and aircraft shortages since the early days of the pandemic, will benefit all shippers at a time like this. ”

Make the right decisions

Brett Rose is a national retail expert and Founder and CEO of United National Consumer Suppliers, an international wholesale distribution company. He said: “The Suez Canal issue is just another example of how business is not a round peg in a round hole.

“Agility is essential and the key to success. Leaders have to rely on their team to solve the problem and find a way to get the round hole in the square peg. I have found that many organizations have more knowledge within these walls than leaders sometimes realize. It is imperative that you bring in a team to strategize when real-time issues like this arise that require quick thinking and a quick solution. ”

Pierre Subeh is a business expert and COO of marketing technology company X Network. He noted, “Often supply chains are planned according to demand, and financial controllers advise buying only what is needed until the next scheduled freight shipment.

“[But] Deprivation of inventory can mean a downhill slope for any business, and many cannot survive a fall. Not having inventory gives customers the opportunity to venture out to competitors. Inventory decision-making should never rest solely on financial controllers, they are important decisions that should be taken more seriously by managers, ”he advised.

Prolonged impact

Ripples

Paulson of Avnet said a prolonged blockage of the channel could lead to temporary shortages of finished goods across Europe. “For the US supply chain, the long-term impacts will be an increase in shipping container shortages, as these containers will remain stranded on ships for much longer than expected.

“Since sea containers are already scarce due to the increased demand for ocean freight and the more complex logistics associated with this mode of shipping, this further compounds the problem. In addition, some shippers will start converting ocean freight to air freight in light of the situation, which will further tighten the already limited air freight capacity and could lead to increased costs in order to secure the space, ”Paulson predicted. .

Snowballs and avalanches

David Macknin is director of the risk assessment and management firm ChicagoRisk. He warned that there is a potential for the snowball effect to turn into an avalanche if the Suez Canal crisis is not resolved quickly. “The snowball is forming now, as the days go by with the boat (and others who are stranded because of it). [This] an incident will adversely affect the long-term planning of manufacturers and the short-term results of the business operations of companies, regardless of their size or industry.

“Supply chains will be restricted and anyone who expects payment will wait because the goods are not there. If a company imports or exports, one can expect an impact on margins and results. “

Macknin asked, “Can the snowball turn into an avalanche?” If a business does not have some kind of trade credit insurance to protect its accounts receivable, losses could easily accumulate due to business insolvency or default. Trade credit insurance can mitigate political risk caused by issues like currency issues, political turmoil, tariffs (and yes, a boat blocking a canal). “