World leaders and businesses breathed a collective sigh of relief Monday when the enormous container ship blocking the Suez Canal was freed after wreaking havoc on global trade for almost a week.
The incident affected nearly 300 ships containing over $9.6 billion worth of goods, laying bare the fragility of supply chains at a time when the world is increasingly dependent on shipments of cheap goods from the far reaches of the planet.
“Companies having gone through [the 9/11 terrorist attacks] and now COVID-19 are aware of Black Swan events – sudden events that kind of change everything,” said Bill Reinsch, a trade expert at the Center for Strategic and International Studies, suggesting companies may begin to research how to produce the products using more expensive goods closer to home.
“And when we weren’t having those, people would say, ‘It’s worth the risk once in my lifetime to make more money in the short run.’ But as things pile up, whether it’s a pandemic or terror attack or a weather crisis, people begin to wonder if resilience and redundancy are more important than they thought they were.”
Weaknesses in the global supply chain were most apparent at the outset of the pandemic, when maritime shipping was disrupted by a backup at sea ports, mostly by lack of available staff over concerns of the virus spreading. Air freight cargo shipments also ground to a halt but have largely resumed.
President Biden last month signed an executive order calling for a review within 100 days of the global supply chain for vital goods imported to the U.S. — looking at things like high-capacity batteries; critical and rare-earth minerals; medicines and pharmaceutical ingredients and personal protective equipment.
“The American people should never face shortages in the goods and services they rely on, whether that’s their car or their prescription medicines or the food at the local grocery store,” Biden said at the time.
Some experts say the past week’s problems in the Suez Canal will be minimal in the long run.
The risk to the U.S. supply chain by the Ever Given calamity will “be at best a blip,” said Gary Clyde Hufbauer, nonresident Senior Fellow at the Peterson Institute for International Economics, with Europe and North Africa likely to feel the brunt of the delivery shortages.
“This is not a major event the way it was resolved. If it had lasted another three weeks, that would have been a much more severe event,” Hufbauer said.
White House press secretary Jen Psaki told reporters Monday that the U.S. is “monitoring and assessing the impact” when asked about concerns the president has over the economic effect of the shipping delay.
The initial blockage caused by the Ever Given, a 224,000-ton, Panamanian-flagged container ship, captivated the world on March 23, when the vessel ran aground and prevented passage through a vital trade route where billions of dollars of goods are moved daily by hundreds of ships.
An estimated 10 percent of the world’s trade moves through the canal, from oil and natural gas to consumer products and livestock.
The ship was freed by the Dutch-dredging company Boskalis, digging up and removing approximately 30,000 cubic-meters of sand around the ship, using over a dozen tug boats to push and maneuver the Ever Given and assisted by the good timing of high tide.
But the frustrations further exposed the challenge of global reliance on shipping and delivery industries, particularly for companies that require parts from multiple countries for building, assembly and manufacturing.
“The ability with which we now have to take a very complicated product, like footwear or an Apple iPhone, for example, and produce the many parts in it in various places in the world, each of which is the cheapest and best quality of that part has been a tremendous driver of economic prosperity, not only in the country’s where the supplies come from but also the in the United States,” Hufbauer said.
“This has been a big contributor to U.S. economic prosperity since the second World War.”
The easiest solution, Hufbauer said, is for more companies to increase their inventories to account for any shipment disruptions.
“When you have a world of ‘just in time’ delivery of inventories, any interruption brings down the whole system. But that’s a phenomenon which is reasonably, easily addressed,” he said.
Another approach, he said, is to devise a sort of stress-test for industries or companies to gauge their exposure to supply-chain disruptions and find ways to mitigate them.
Jamil Jaffer, founder and executive director of the National Security Institute at George Mason University, said the blocking of the Suez Canal also shows how a number of actors could take advantage of shipping channels to cause disruption.
“It’s not just nation state adversaries that could block these choke points. It doesn’t take an explosion. You could even make it look non malicious,” he said, noting that the Ever Given event appeared to be caused by human error.
“All you need is control of one ship. You don’t have to blow anything up; you don’t have to kill anybody, and you can still have a huge impact on world commerce very quickly.”
He said it shows the importance of military efforts in a number of regions, even those far from the canal.
“It demonstrates why we need to ensure there’s freedom of navigation around the globe, and why the U.S. navy pursues freedom of navigation activities around the globe including in the South China sea and other critical chokepoints like the Taiwan Strait.”
Hufbauer, of the Peterson Institute, called the state of global trade in the South China Sea a “ticking time bomb” amid bitter U.S. and Chinese relations.
China is the U.S.’s third-largest goods trading partner but Washington and Beijing are increasingly at odds. They are in stark competition over technological superiority and global influence. The U.S. has further sanctioned Chinese officials and entities over human rights abuses in Xinjiang and for imposing democratic rollbacks in Hong Kong.
A spark of confrontation in this key waterway could have a severe impact on maritime trade routes, Hubfauer warned, and suggested the best pathway forward is a “gradual decoupling” of the U.S. reliance on Chinese exports.
“As you won’t get new expansion of sources of supply in China, instead firms will choose Vietnam, or Indonesia, or South Korea, or Mexico — not as efficient, not as good quality, not as cheap, but it reduces the risk. That, I think, is going to happen.”