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The blockade of the Suez Canal: globalization and the problem of supplies planned to the millimeter

And they managed to move it! After days of great effort, the huge container ship stranded in the Suez Canal, whose name, “Ever Given”, is now known throughout the world, has been at least partially refloated.

This does not mean that traffic has returned to normal on this important waterway, but the giant was unblocked and they were not forced to unload hundreds of containers. This is especially good news for world trade, because each day of the blockade is very expensive. The Allianz insurer estimates daily losses at about $ 10 billion.

This is not surprising, as 13 percent of the total volume of world trade flows through this 193-kilometer channel between the Red Sea and the Mediterranean. This is the shortest connection for the exchange of goods between the economies of Asia and Europe. But it is, and this became very clear in recent days, also a bottleneck with limited capacity, such as the Strait of Hormuz in the Persian Gulf or the Strait of Malacca in Southeast Asia. And then just a sandstorm or a captain, perhaps distracted, is enough to block an artery of world trade.

The “just in time” problem

Then there will be, as now, another 400 ships at the respective entrances to the canal, which will not be able to move forward or backward, because the shipping companies have to weigh whether to wait for authorization to continue sailing or to choose the detour through the Cape of Good Hope, which would mean a much longer route. In the respective ports of destination, on the other hand, they have to take other aspects into account, because there everything is calculated to the millimeter. What do they do if the delayed ships all arrive at the same time?

“Just in time” is the magic expression in logistics. In car factories, for example, parts are only delivered when they are needed. This saves costs, because warehousing takes place in trains and trucks. This also works on a global scale But with the coronavirus pandemic, it should have been clear by now that everything is planned so tightly that supply chains can stop working from one moment to the next.

The problem of the pandemic

This was already noticeable at the beginning of the pandemic, when China closed its factories and the population was confined: at some point there was less container transport and important parts were missing from the production lines. Later, Europe also closed its factories and when the Asian chip factories started again, the production changed, because there was demand for other products. When car manufacturing resumed, chips were logically missing: Volkswagen, for example, stopped making 100,000 cars last year.

Supply bottlenecks have also been noted in other sectors: bicycles have become a rare commodity in Germany. This is because there are not enough containers to ship things and also there are not so many passenger flights, where you can load goods. This year, according to estimates by economists at Allianz, supply problems could cause losses to world trade worth 230 billion dollars.

Much to improve

Of course, the coronavirus crisis does not mean the end of globalization. The hope held by some critics of world trade and the global division of labor will not come true. Which is not to say that globalization works perfectly. On the contrary, there is a lot to improve, for example, labor and social standards around the world.

Many companies have been calculating for a long time whether storing and setting a timeframe for important parts would ultimately be more profitable than stopping production when parts are missing. One thing is certain, the blockade of the Suez Canal will not be the last disruption to the world trade flow.


Author: Henrik Böhme

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