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APU Business Original

Suez Canal Ship Blockage Breaks the Worldwide Supply Chain

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By Dr. Robert Gordon, CPC
Program Director, Reverse Logistics Management, Government Contracting and Acquisition, and Military Management

Port congestion was already having problems before the Ever Given incident at the Suez Canal and “the blockage of more ships carrying billions of dollars’ worth of goods,” The Washington Post reported.

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According to SupplyChainDive, Nike has already declared that these port delays are affecting its U.S. inventory level. Foot Locker too is struggling to keep inventory available following the holiday season spike in demand.

As Nike CFO Matt Friend told SupplyChainDive: “Disruption in the global supply chain due to container shortages, transportation delays and port congestion has interrupted the flow of inventory supply.”

In fact, inventory problems are so bad that Honda and Toyota are scaling back production. Syria has also declared that it will ration fuel due to concerns over its fuel supply.

Although ports on the U.S. West Coast and in the Far East are far from the Suez Canal, keep in mind that with the worldwide container shortage and the hundreds of vessels tied up in the Suez Canal, supply chain issues will worsen before they get better.

Container Shortages and Transit Problems Mean Higher Prices for Consumers

What does this mean for the average consumer? Higher prices. As demand increases and as supply decreases, there will be an increase in costs to consumers.

Oil prices fell and then rose again Monday as news reports suggested that the Suez Canal drama might be drawing to a close, The New York Times reported. “[B]efore dawn on Monday, the ship broke free from the shore and was partially refloated — a moment both shipping and Egyptian officials hoped marked the beginning of the end of the saga.”

Oil refining prices are already rising and oil futures are uncertain, leading to increased prices at the pump. With an estimated 10% of the world’s oil supply going through the Suez Canal, we can expect to see further price increases prices with that major artery not yet fully unblocked. Higher fuel prices while many Americans are still out of work makes for a difficult situation.

Although U.S. domestic oil prices are reasonably stable for the moment, we can expect to see a spike should the U.S. shift more oil for export. In addition, as oil-exporting nations start to feel the pinch of increased oil costs and scarcity-created price increases, they will undoubtedly pass those increased costs to U.S. consumers.

It Is Necessary to Keep an Eye on the Bigger Picture of Global Trade

If the COVID-19 pandemic was not enough to disrupt global supply chains, these recent issues only increase shipping costs. Although this situation is likely temporary, we need to keep an eye on the bigger picture of global trade.

With worldwide trade disrupted by a single ship – albeit a 224,000-ton super freighter capable of carrying 20,000 containers – stuck in a major transit canal, manufacturers and shippers will certainly consider other options when it comes to essential supplies. The U.S. plan to update and expand infrastructure is timely and vital as one sees the ripple effect globally. Given the recent problems in worldwide trade, investing $3 trillion in a new infrastructure plan seems like a plan that will pay dividends and improve efficiencies in the future.

About the Author

Dr. Robert Gordon is the Program Director of the Reverse Logistics Management, Government Contracting and Acquisition, and Military Management programs at American Public University (APU). APU has an accredited academic program for a bachelor’s and master’s degree in Reverse Logistics.

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