The Suez Canal is one of the world’s most critical pieces of infrastructure, used by thousands of ships each year to quickly move goods from Asia to Europe.
Located in Egypt and connecting the Red Sea to the Mediterranean Sea, the 100-mile canal has operated since 1869. Each year, cargo vessels (a whopping 18,880 ships in 2019) use the heavily protected route to avoid drastically longer shipping routes around Africa’s Cape of Good Hope at the continent’s southern tip.
Unfortunately, the Suez Canal and the global supply chain are straining under a recent series of attacks in the Red Sea near the canal.
According to the Office of Naval Intelligence, between December 27, 2023, and January 24, 2024, 16 incidents tied to Houthi rebels occurred in the Red Sea. The attacks, which are tied to the ongoing Israel-Hamas conflict, have had a chilling effect on some shipping companies, including Maersk. The Danish company recently decided to reroute its ships around the Cape of Good Hope to avoid the canal entirely.
While the supply chain is at risk with the latest Houthi attacks, this isn’t the first time the Suez Canal has been at the center of a supply chain issue. In March 2021, the Ever Given, a massive 20,000-container vessel, became wedged sideways in the Suez Canal for six days. The incident caused nearly $10 billion in goods each day to be delayed and backed up about 400 ships from traveling the canal during the six-day span.
But concerns about potential dangers have sent ripples through the international shipping community, leaving commercial vessels and other ships in the Red Sea navigating dangerous situations and more brazen attacks.
So, in the face of continued threats, how will the global supply chain respond, and what can companies do to lessen the blow?
Not only is it an issue that the incidents are occurring, but they’re also creating problems for every industry using the canal for global trade.
As is the case with any supply chain disruption, several problems rise to the top, including:
If cargo ships and oil tankers can’t safely use the Red Sea to navigate the Middle East, they need other land or sea routes to move products.
The only available route that makes sense is traveling around the Cape of Good Hope, which is at the southern tip of Africa. The route is much longer than cutting through the Suez Canal, sometimes adding 2 to 3 weeks to transit times.
Longer lead times eventually create schedule disruptions, requiring ships to be out longer. With more vessels moving cargo, companies run the risk of depleted cargo ship inventory for other shipments, further slowing everything down.
“I don’t think we need to be fearful just yet, but we do need to be conscious of the impacts,” Kris-Tech’s Supply Chain Director Marcus Tagliaferri said. “A key point and savior in this situation was excess vessel capacity. If capacity had been tighter, the situation could be a lot worse than it is now. In fact, cargo companies could see more revenue and profit from this crisis.”
To combat compounding supply chain issues, manufacturers, distributors, and consumers must plan for potential product shortages and delays because of longer trade routes and shipping times.
Longer trips = more money in the long term.
Adding thousands of nautical miles to a shipping route means more fuel is used to power the cargo ship, more labor is needed for longer stretches on each voyage, and time is wasted waiting for products and materials to arrive.
Eventually, the cost is passed down for others in the supply chain to absorb, including distributors, sellers, and end users.
Companies need alternate routes when the Suez Canal isn’t a reliable option.
Unfortunately, there aren’t many good options to quickly move cargo, leaving only the previously mentioned Cape of Good Hope to fall back on. The route is safer but slower and could lead to congestion at ports during the journey. In this case, the Port of Cape Town will likely see an influx of diverted ships.
Typically, ports can efficiently manage a certain number of cargo ships daily, but everything changes when diversions happen. As more vessels dock, delays lead to congestion, slowing transit and increasing wait times.
After the Ever Given incident in 2021, questions popped up about what could be done to keep products moving smoothly. One idea featured a rail route through Eurasia that could avoid the Indian Ocean, the Gulf of Aden, and the Red Sea to deliver products to ports along the Mediterranean Sea or other areas.
The other proposed choice is a northern route through the Bering Strait, though it would likely be seasonal because of the climate. Shippers would have a shorter route between the Barents Sea near the Norway/Russia border through the Bering Strait, and it could be an option soon… but only if sea ice continues melting at its current pace. The situation is a bit of a double-edged sword, to say the least.
The United States has a lot at stake, so ensuring the Suez Canal is safe is a top priority.
In December 2023, the U.S. launched Operation Prosperity Guardian. The multinational effort is meant to protect shipping vessels in the Red Sea as they try to use the canal and has already shown several successes. To date, the operation has taken out several drones, missiles, and small boats launched by the Houthis to divert and damage ships in the region.
As a result, U.S. leaders say the efforts have allowed hundreds of ships to safely pass through the Red Sea without incident.
The topic was covered before, but finding alternate routes that make sense could go a long way toward addressing present and future problems.
Our only worthwhile option is sailing around the Cape of Good Hope into the Atlantic Ocean, but the route adds weeks to the trip. Other ideas, including the previously mentioned land route or Bering Sea route, are hampered by massive development and infrastructure costs, geopolitical concerns, environmental fears, and seasonality.
Other plans, including sailing across the Pacific Ocean and through the Panama Canal, would add thousands of miles to journeys and overcomplicate the process.
The Suez Canal is vital to European and Asian trade but isn’t the only route available. Companies can try to find suppliers and manufacturers that don’t rely on the passage for their shipping, though it’s easier said than done.
Between 10 and 15% of global shipping trade moves through the Suez Canal each year. Though that leaves plenty of margin for other shipping methods, they may not be faster, more cost-effective, or more efficient in the long run.
If the conflict between Hamas and Israel continues, the Houthi attacks will remain a problem.
Manufacturers and suppliers must find solutions and adapt to the current situation to avoid supply chain breakdowns and delays. That means building longer transit times and delays into their supply chains to maintain continuity with their current partners and prospects. It could also mean relying on multiple suppliers to keep materials flowing – though it could come at the cost of quality, pricing, supply, etc.
Lastly, it’s worth exploring more domestic and nearshore partnerships when possible. They may be difficult to cultivate but could reduce shipping times if materials are available domestically or in a nearby country.
This isn’t the first, nor will it be the last, instance where we’ve seen the supply chain being shaken by external factors.
The previous few years have been hard on the supply chain but have opened the door for innovation, adaptation, and consolidation. While it remains to be seen what the solution may look like, it’s clear that more trade routes should be available to support strong ties and keep commerce moving.
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