Lessons to be learnt from Suez Canal blockage for export-oriented businesses

Well, who doesn’t know about the Suez Canal Blockage? Built-in 1859, this artificial waterway is making a tremendous impact on global trade and ecommerce. Recently, it was blocked by a gigantic cargo ship, ‘Ever Given,’ and it disrupted the supply chain in the North Atlantic. Semiconductor chips and crude oil were among the worst hit as their prices shot up heavily during these six days. The ship has been evacuated, and the reason behind this incident is yet to be traced, but there’s always something to be learned. As they say, “Never let a good crisis go to waste” (popularly attributed to Winston Churchill, but some experts have to say otherwise), let us see what we can learn from this episode. Okay, I am in love with memes (who isn’t) so let us go through some of them before zeroing in:

Here are a couple of memes on how people flooded the social media with memes as the man-made wonder was choked:

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Movie time!

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And it went on…

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Okay, the last one since I am a mechanical engineer:

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Woah! That’s enough memes, so let’s get started on the learnings right away:

#1 Know your liabilities

We all know that international trade was stalled largely due to the pandemic, and once it has been dealt with completely, many new businesses will surface. Despite the speculations around international trade and possible localization drives, people are most likely to go with the old model with a few obvious changes to ensure their best interests. Thus, it becomes necessary for the businesses to fully understand their liabilities in case such an incident happens again which is quite possible. I find that such an incident can reoccur because the payloads have increased tremendously during the last few decades, and they have made maritime trade very economical. 

We are talking about an increase from 600 TEU to 20,000+ TEU, which lowered the running costs and helped reduce the costs incurred on related activities like loading and unloading the cargo. However, the infrastructure and the peripheral mechanisms installed aren’t designed to support such a gigantic increase. This is well reflected in the throughput (the total unit that can pass through such areas within a 24-hour window), and therefore, you should consider such technicalities. 

Coming back to your liabilities, salvage guarantee and GA (General Average) are a few such aspects that you need to care about. When a vessel is at risk due to unforeseen conditions, the ship’s captain may use the GA protocol to minimize the damage caused to the ship, crew, and cargo. The economic damage incurred as a result of such a condition is borne by the owners of all cargo items in proportion to the value of the goods shipped to maintain an equitable responsibility for the common good. The application of force majeure also needs to be probed for shipping insurance claim settlement, and the whole process might take even years before the settlements are completed. Thus, as a business owner, you shall go through these details and make necessary provisions, so you don’t end up scratching your heads while the internet goes on a meme spree.

#2 Predictive analysis and risk evaluation should be a part of your shipping policy

As mentioned above, your internal operations should be capable of responding to such adverse situations. This may require you to increase the buffer stock, pool resources, have alternative vendors, and make provisions for alternative transport methods if your finance managers permit doing so. Your shipping policy should be made dynamic enough to include the weather conditions, throughput rate, and other metrics available on a real-time basis for displaying lead time accordingly. If you are selling your products overseas, make sure to include these aspects in your shipping terms to immunize yourself from any possible claims. 

This will indeed require you to integrate your shipping management solution with third-party shipping companies and analytics providers, but the benefits are multifold. This move will safeguard your interests in case of another blockage in the Suez or the Panama Canal and help optimize the overall costs with the help of improved transparency. Thus, we can agree that predictive analysis and risk evaluation will help deal with a lot of leaks currently present in the shipping policies.

#3 Choose your carrier, insurance, and schedules wisely

Naturally, you will need to be smart with the choice of your shipping carrier, purchasing insurances, and scheduling the delivery/receipt of your goods. The International Union of Marine Insurance (IUMI) is advocating the use of better-designed ships to fight any possible glitch like a fire breakout, and you should look for the carriers whose ships are in line with the safety recommendations. Your insurance policies should also be revisited to ensure that your cargo is covered properly to avoid falling prey to the terms and conditions acting against your favor. The bigger your company is, the bigger risk this condition poses as we cannot expect the shipping companies to use smaller ships owing to their less impressive economics.

At the same time, I would recommend revisiting your cargo scheduling as dividing essential supplies into multiple payloads and shipping them at considerable intervals can help minimize your risks. As an export-oriented business, this may hurt your pocket a bit, but it will ensure sustainability in the sight of events like these.

This event could not be discarded off as a black swan even if it were a result of natural causes as the current ship sizes are highly vulnerable to such mishaps. It is an alarming call, but at the same time, we cannot expect overnight alterations due to the economic burden involved. The use of advanced technologies and data-driven planning will surely improve the condition in the future, but until then, going by these tips will ensure that your export business stays afloat.