On March 23, the Suez Canal made headlines worldwide – Ever Given, a 1,300-foot Japanese-owned container ship en route from China to Europe, was stuck on the waterway for six days.
The number of days may seem small, but the impacts on the global economy are still being felt, after all, it is estimated that 90% of world trade is transported by sea.
The waterway was inaugurated in 1869 and since then it has been a vital international sea crossing – it is an important commercial route that shortens the distances between Asia, the Middle East and Europe.
Located in Egypt, the channel connects the Mediterranean Sea to the Red Sea, preventing ships from having to bypass all of Africa – thereby saving vessels thousands of kilometers of travel.
The nonstop race to unlock the canal, which, according to the Suez Canal Authority, has over 12% of world trade passing through the structure, lasted six days, with rescuers working on land and water draining sand and removing rocks from the ends of the ship that had blocked the passage.
In addition to Egypt, other countries were also involved in solving the problem, such as Holland and Germany, and even the United States offered help. There were fourteen tugs pulling and pushing Ever Given at high tide to move it.
It is worth highlighting the work of the cargo agent, who manages the ship and plays a fundamental role in communication between a vessel and the transport and storage companies, customs brokers, container terminals and port operators. Such professionals were instrumental in the entire process that Ever Given went through due to stranding.
The lost money
On March 29, just a few hours before the Suez Canal was released, 367 ships were waiting to pass through the route, according to Leth Agencies, a local service provider.
To be aware of the impact, about 12% of global trade, one million barrels of oil and 8% of liquefied natural gas pass through the channel every day, and before the pandemic, trade that passed through the Suez Canal contributed with 2% of Egypt’s GDP. There was even an increase in the price of oil due to the unusual situation.
As delays can be very expensive for shipowners, some have decided to redirect ships around the Cape of Good Hope, in the far south of Africa, adding about eight days to sea voyages – experts estimate that congestion has held back almost 10 billion dollars in daily transactions.
According to an analysis by German insurer Allianz, the blockade costs global trade between $ 6 billion and $ 10 billion a week and could reduce annual trade growth by 0.2 to 0.4 percentage points.
Countless businesses affected
However, the blockade of the Suez Canal does not only affect the global shipping industry: countless businesses, from domestic transport suppliers to retailers, supermarkets and manufacturers are also affected.
From food products to spare parts for engines, they stopped at sea. There was even a concern that if the blockade in the Suez Canal continued, some companies would have to pay to order more goods and send them by air freight, which costs at least three times as much.
This means that even with a return to normal operations in a week or more, the temporary block would leave supply chains having to overcome the accumulated portfolio – those responsible for supply chain purchases closely monitored the progress of the resolution, tracking which materials the suppliers owned and could be on one of the ships stopped in the Suez Canal.
Freight forwarders had to negotiate their annual contracts with retailers and manufacturers that depend on global supply chains, having to choose between maintaining today’s high prices for next year or betting that they will decline as the system rebalances.
What to do if your cargo was on this freighter?
The channel incident can also cause companies to rethink supply strategies, better knowing their vulnerabilities and possible unexpected events – such as a global pandemic or a ship stranded on an important channel.
Some professionals have even decided to increase their safety stock to deal with supply chain disruptions, for example. Below are some tips on what to do if the cargo stops in a sea traffic jam.
Have a risk management plan
In this scenario, more and more companies seek to achieve the maximum degree of resilience possible. In an environment where companies buy from suppliers, who in turn depend on raw materials from other companies, any change can expose the entire ecosystem. With such complexity, risk management is essential to make the area resilient and capable of conducting new business in an agile manner.
Consult Incoterm in your Purchase Order
Before any action, know who is responsible for your cargo, the buyer or the seller. This information is determined by the Incoterm used in the purchase order and will determine your next steps to resolve the issue in question.
Consult the freight forwarder
If so, contact the hired freight forwarder to see if your container has been affected and what are the new delivery forecasts. If possible, contact the person responsible for the means of transport, such as the carrier.
This information can be found in your cargo’s Bill of Landing. When contacting, identify your cargo by the number of the container, the name of the ship and the seal, found in the same document. In case of perishable cargo, double the care.
Identify the person responsible for the accident
The person responsible for the accident, if any, should be penalized. Points that must be analyzed, for example, are the jurisprudence of the place where the accident happened. These determinations depend on international treaties and if the cargo is in international waters, international justice can be applied.
If we are talking about a territory in a specific country, those responsible must be judged by the law of that country. Another possibility is that the case is judged by the country of nationality of the ship. In all cases, an international arbitrator can be counted on to expedite the agreement without having to follow the judicial procedures.
Buy in advance
Plan to always do your shopping in advance. Programming yourself so that your cargo does not delay even with possible unforeseen events, can avoid several problems that react in a chain. Buying to replenish stock is a good option so that your production does not stop.
And most importantly, have cargo insurance
In case of accidents, if no cargo insurance has been taken out, there is a possibility of loss of the goods without the right to reimbursement. In case of perishable cargo or damage, the only possibility of not losing your investment is by calling the insurance. Some Incoterms define the mandatory insurance, but the recommendation is to hire it independently of Incoterm.
Being prepared is essential and in this sense, the use of sensors, big data and attention to technologies such as machine learning are fundamental points for professionals. In this way, it is possible to organize the information that comes from different sources, closely monitor each stretch of the chain, predict and avoid possible problems, and have a clear sense of priorities within the organizational environment.
Identifying the best time of the year to obtain parts at the best prices from a specific supplier, generating preference over suppliers who have better delivery times and better payment terms are some possible actions, which end up contributing to the company’s financial health as one all.
Supply chains are increasingly complex and, as a result, many companies are forced to follow an increasing number of rules and regulations – understanding cargo ship routes and traffic can be a differentiator to generate the greatest possible security for the purchase process.
The recent Ever Given stranding on the Suez Canal, exposes the weaknesses of this global system – with transportation so dependent on narrow waterways, the potential for these incidents is always present.
Companies must be more aware of these weaknesses as the world becomes more connected, looking for solutions that keep the supply chain balanced even in adverse situations.
Most problems can be avoided with predictive problem analysis, a good risk management plan and a resilient and agile supply chain.
On our blog you will find several blogs to help you modernize your supply chain to be prepared for the big changes and eventual problems in global trade:
- 7 strategies for a more resilient Supply Chain
- The impact of shared economy on supply chain
- 6 tips to develop agile supply chain in your company
- The impact of the digital world on the supply chain
- What lean supply chain management is – and why it matters
You can also count on Soluparts to help you deal with these unforeseen events – we are located in the most strategic markets in the world to facilitate your purchases and offer quotes from the most relevant manufacturers, with agility and security. Send us your quote request!
In addition to the impact on health, the economic consequences of COVID-19 are being felt in all sectors of the economy – due to the slowdown in business investments and consumer spending, as well as industries shutdowns and bottlenecks in logistics.
This is the scenario covered in this article, offering a special focus on the purchasing department.
The new coronavirus and the impact on the global economy
One of the researches on the impacts of the new coronavirus on the global economy comes from the National University of Australia / Brookings and predicts a drop in GDP in the main global economies in 2020. The report concludes that the damage will be widespread and that policy makers must be willing to invest high to minimize the effects of the pandemic – learn more about the study and the GDP reduction table.
Thus, one of the consequences of the new coronavirus concerns employment. The ILO (International Labor Organization) estimates a reduction that will be between 5.3 million (optimistic forecast) and 25 million jobs worldwide. In addition, the ILO also foresees an increase in underemployment and loss of workers’ income.
Stock exchanges around the world are already accumulating huge declines and, in view of the restrictive monetary conditions, the banking sector is being more cautious in the release of credit. Public finances are not exempt from the new coronavirus crisis and, due to the fall in economic activity, the increase in public debt is considered certain.
The supply chain and the COVID-19
The new coronavirus also impacts supply chains. Many companies had its production interrupted having the supply of services and goods greatly affected.
Those that depend on Chinese products, for instance, suffer even more: currently, more than 20% of the manufactured intermediate goods consumed on the planet are produced in China. Cell phones and other electronics produced in several countries need chips, integrated circuits and other parts produced and marketed in that country, for example.
This dependence even made Bruno Le Maire, Minister of Economy of France, affirm that the COVID-19 pandemic must be seen as the chance to review and change the global supply chain dynamic, so dangerously dependent on Chinese products. He also defends a globalization slow down and the interconnection of the international supply chain.
On the other hand, the supply chain was also impacted by social distance and the panic that led people to the supermarket to generously supply their pantry, requiring from some sectors a significant increase in production and agility in delivery to avoid shortages of provisions- emblematic example is alcohol gel 70 %, one of the most sought products worldwide.
Procurement Department: minimizing impacts of COVID-19
The audit firm KPMG, analyzed the market and released some guidelines on the necessary steps for companies to understand how they are being impacted by the COVID-19.
From these guidelines, we list some tips for the purchasing department to minimize the effects of the new coronavirus on the sector and the organization.
1. Immediate actions
Assess what changes in the organization’s business plans and, more specifically, review purchase planning to ensure that both are aligned.
Another essential step is to assess the risk of suppliers closing or delaying deliveries, identifying how they can affect business and reviewing regional and global flows to see ways to optimize resources.
Map the criticality of the materials used in the production of products that generate greater revenue for the company and review contracts with these suppliers, evaluating the need for new negotiations that meet the new scenario faced by the organization.
Pay special attention to the stock, maintaining the appropriate level of safety, identifying risks that can lead to increased costs and establishing proactive actions to avoid the lack of materials that interrupt production.
2. Medium or long term actions
Learn from the past. Use data from occurrences already faced and that have generated some instability in operations – such as previously overcome economic crises – to make effective decisions, such as: identifying which stock level should be maintained or which supplier profile serves your company with excellence.
Invest in technologies and team training, taking advantage of advanced tools to ensure that all employees are prepared to work remotely. Not only in times of crisis, but through possible needs imposed by the business environment – and without compromising the quality of the services offered.
In the face of COVID-19, purchasing department managers may question the validity of maintaining their operational model based on a large number of suppliers that need to be closely monitored constantly or whether it would be possible to evolve the process into a more practical, agile model that reduce costs and be less vulnerable to unforeseen events like the new coronavirus.
The answer to this question is in the partnership with a company specialized in the purchase of all brands of indirect materials. Soluparts has extensive experience in this regard, having access to the main suppliers worldwide and professionals able to obtain the best prices and terms, even in critical situations such as the one we are going through – get to know our value proposition!
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