When "Just-in-Time" Falls Short: Examining the Effects of the Suez Canal Blockage

A six-day hold-up on the Suez Canal, set in motion by a stuck container ship that blocked passage on one of the world's busiest waterways, had experts rethinking the "just-in-time" approach that has come to define modern supply chain strategy. The Suez Canal blockage only further exposed vulnerabilities in the just-in-time technique that had been revealed as the COVID-19 pandemic disrupted supply chains around the world for the better part of 2020. This case looks at the blockage and asks students to discuss whether it points to any needed changes in supply chain models.

The 200,000-ton container ship that blocked Egypt's Suez Canal for six days in March 2021 brought to a halt one of the world's busiest waterways and left more than 400 ships stranded. The Empire State Building-sized vessel, named Ever Given, ran aground in a single-lane stretch of the canal that connects the Mediterranean to the Red Sea. Built in 1869, the Suez Canal is the shortest maritime route from Asia to Europe.

High winds and a sand storm were early explanations given for the blockage; however, Egypt's Suez Canal Authority chairman said weather conditions "were not the main reasons" and "there may have been technical or human reasons," the BBC reported. The waterway carries over 10% of global trade, including 7% of the world's oil. The Ever Given blockage was yet another wake-up call for companies whose business models rely on supply chains with little room for error, as Milken Institute Chief Economist William Lee told the Associated Press.

"This is a warning about how vulnerable our supply chains are and how the just-in-time inventory techniques that have been so popular have to be rethought," he continued.

Suez Canal Authority chief Osama Rabie said that the canal's revenues lost USD 14-15 million each day it was blocked. A study by German insurer Allianz showed that the blockage could cost global trade USD 6-10 billion per week. The incident is the latest warning to retailers that "just-in-time" supply chain models have backfired during the pandemic. As New York Times reporter Peter S. Goodman describes, in recent decades, management experts have championed "just-in-time" manufacturing to cut costs and increase profits. Instead of spending money filling warehouses with excess product, that money "can be given to shareholders in the form of dividends," he writes.

But over the last year, with factories shut down and trade restrictions put in place, shortages of pharmaceuticals, face masks, and other products highlighted the weaknesses of those strategies. A report by Capgemini Research Institute found that two-thirds of retailers plan to overhaul their supply chain strategy over the next three years. While the disruption from the Suez blockage was not as dramatic as the pandemic shortages, it was yet another reminder of the global supply chain shortcomings.

Why Is It News?

When consumer spending shifted from restaurants and gyms to imported goods for our new at-home lives, the shift happened faster than retailers could predict. This abrupt change strained the shipping industry, with the cost of shipping a container of goods from China to the United States doubling since November 2020. The ships halted for six days in March 2021 contained oil, electronics, semiconductorsof which there is a severe shortageand vast quantities of goods that are keeping shoppers stuck at home occupied.

While the "just-in-time" approach to supply chain management produced larger profits, companies are now having to rethink their strategy as they have been left vulnerable. But economists are saying that while the blockage may be a costly headache, it will not "make or break the global economy," as Gregory Daco, chief U.S. economist for Oxford Economics, told the Washington Post . Also, as more people become vaccinated against the virus and return to restaurants and theaters, fewer goods may need to be shipped from Asia. Torsten Slok, chief economist for Apollo Global Management, echoes Daco. "From a macro perspective, this is a temporary kink in the supply chain," he said..

Research about the Suez Canal Blockade and write a paper that must address the following:

1. What have both the pandemic and the Suez Canal blockage revealed about vulnerabilities in the "just-in-time" technique?
2. How do you think these vulnerabilities ought to be addressed?
3. In a post-pandemic world, do you think companies need to be better prepared in general for continued disruptions?