Suez Canal Blocked by Megaship Puts Pressure on Supply Chain Managers to Stay Strategic

Finding a way to manage logistics has never been so hard. Yes, the past contains example after example of struggle and difficulty getting goods from point A to point B. However, the complexity was nearly as grandiose as the supply chains of today. Last year, it was disruption due to lockdowns. Last month, it was disruption due to winter weather. And today, it is a disruption caused by a mega container blocking Egypt's Suez Canal, reports S&P Global. But how did this happen? Well, things float, and the mega-ship wedged itself into a difficult-to-escape position that's cut off an artery of trade, wreaking havoc on shipping management and mode optimization.

The ship in question is 1,300 feet long and 193 feet wide. It weighs 220,000 tons and can carry 20,000 containers. Running aground occurred following strong winds in the area that pushed the vessel to the side. As of 12:00 PM EST, no containers had sunk, which is great news for shippers. Unfortunately, other problems remain.

The Stranded Ship Deals an Affirming Blast to the Need for Strategic Supply Chain Management

When things go wrong, as they have today, the whole supply chain can endure disruption. It's too costly to consider moving shipment in a backwards flow as a general rule from this point. However, strategic supply chain leaders could apply big data analytics and artificial intelligence to pull off a Hail Mary in this instance. As an example, organizations with a strategy in place could reroute existing inventory in their networks to avoid out-of-stocks and try to proactively preempt added fees deriving from demurrage or drayage expenses. Other applications may include a stronger need for freight auditing or other proactive steps.

What's the Solution When Freight Is Literally Stuck in the Ground

The best solution is rather simple. It's going to cost money to find an alternate trade route while the ship's stranded. Since Suez Canal is a major maritime thoroughfare, market participants are already reworking manifests and itineraries. But where will this be felt the most? The answer to that question rests with demurrage fees. As the freight stalls, it will mean added congestion at major ports along the U.S. East Coast. In addition, it is another thoroughfare for the flow of crude and refined products from the Persian Gulf.

You did read crude correctly—the fossil fuel empire of the globe is stuck without a primary way to move oil to the U.S. for the immediate future. IN fact, the canal is responsible for the movement of approximately 500,000 barrels of crude oil from Saudi Arabia alone.

The rationale for using the Suez Canal is due to its more economic and cost-effective transport time. However, that's changed the game within the last 24 hours.

That will compound into delays and added fuel expenses within the U.S. As such, it will not be surprising to see fuel surcharges and accessorials experience a spike in the coming days, which could very well lead into weeks. Additionally, it will be interesting to see how organizations look to double-down on auditing to build-out value and prevent things like this from continuing to disrupt the network.

What's Next

Asia-Pacific Long Range clean tanker rates have ticked upward to 2021 highs with anticipation for records. And those rates will inevitably lead into higher demurrage rates, as well as increases in OTR transport in the U.S. following fuel hikes. The cycle will balance with time, but the flurry of activity has one ultimate outcome.

Shipping management parties that cannot track their spend and freight data in real-time, including the ability to audit invoices and activities as they occur, will have a much greater risk of missing errors. And since errors are known to occur in the overwhelming majority of carrier invoices from inception, it's a significant risk.

There's also another factor. Maritime carriers have the greatest error rates for overbilling or double-billing. Combined with the likelihood of gains in rates due to this blockage of the Canal, the financial impact and burden of this single ship running aground will be felt for months to come.

Shipping Management Parties Need a Partner to Avoid Overspend

Everything boils down to this one fact. When disruption strikes, it can cost millions, if not billions, when applied across the vastness of the global supply chain. Even while this event unfolds around the globe, the results are already on the horizon for U.S. shippers. And those without a strategy will find it even more difficult to keep pace. Again, this event has proven the indispensable role of effective, proactive and data-driven decision-making in logistics. Everything is connected and reliant on other functions in the chain, and with data everywhere, there is no excuse to forgo preparing for events like this. Where do you want your organization to get stranded: that's the question. And the answer should be, "we want to avoid getting stranded by staying strategic and at the ready long before something like this threatens our enterprise." Connect with Intelligent Audit to learn more about the value of big data analytics and freight auditing to pre-empt disruption in supply chain management.

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