Suez lockdown will accelerate change in global supply chain, says Maersk chief

The blockade of the Suez Canal will accelerate the global abandonment of just-in-time supply chains, according to the boss of the world’s largest container shipping company.

Soren Skou, chief executive of AP Moller-Maersk, told the Financial Times that companies have already changed their supply chains due to the coronavirus pandemic, moving away from single suppliers and rethinking their reliance on just-in-time – where the components are delivered. to factories exactly when they are needed.

Instead, companies are adopting supply chains just in case, maintaining much higher inventory levels to avoid being caught off guard by disruptions.

“We’re moving towards a just-in-case, not just-in-time supply chain. This incident [in the Suez Canal] will make people think more about their supply chains, ”Skou added.

The Ever Given, the container ship that got stuck in the canal last week, is one of the largest in the world, capable of carrying 20,000 20-foot containers. Rescuers have attempted to refloat the ship to unlock one of the world’s most important trade routes, so far unsuccessful.

Shipping and rescue experts have warned the ship may have to be unloaded before it can be released, which could take weeks.

Maersk has dozens of ships among the hundreds delayed by the blockade, and has already hijacked 15 of its ships across South Africa, adding about 10 days to trips. It also plans to use air freight to get essential components to customers.

The Danish group is an indicator of world trade, carrying a fifth of the world’s ocean freight and carrying goods for many large global companies such as H&M, Nike and Unilever.

Many companies have redesigned their supply systems after Covid-19 lockdowns caused significant disruption in just-in-time supply chains when they suddenly couldn’t get their hands on a certain component.

“How bad do you want to be right on time?” It’s great when it works, but when it doesn’t, you lose sales. There are no just-in-time cost savings that can offset the inconvenience of lost sales, ”Skou said.

He added that companies were also moving away from reliance on single vendors, a move that could have saved them “the last 5 cents on a component.” “We clearly see our customers saying that we need to have multiple vendors to make sure a single small sub-vendor can’t shut us down,” Skou said.

Many supply chain analysts agreed that manufacturers and retailers were moving towards a just-in-case model, but highlighted the burden of holding extra inventory on cash-strapped suppliers in hard-hit industries.

“If Covid has done anything, it has run out of cash,” said Paul Adams, director of Vendigital, a consultancy firm.

Freight rates have skyrocketed in recent months as businesses around the world scrambled to build up inventories after being caught off guard by the strength of the recovery in demand for goods late last year. Skou said he expected this to continue in the coming months.

“Retailers stopped buying in the spring of 2020 and now they are trying to restock at the same time as the demand is very high. The replenishment cycle will take a while, ”he added.

The Maersk boss said freight rates were also likely to rise further due to container ships being left out of position by the Suez closure.

David Kerstens, analyst at Jefferies, estimates that container shipping companies will make more money in the first three months of 2021 than they did last year.