Last week, The Ever Given, a massive containership, almost as long as the Empire State Building is tall, ran aground in one of the busiest waterways in the world. High winds and a sandstorm caused low visibility and poor navigation in one of the narrowest portions of the 120mile long Suez Canal – a perfect storm if you will. The Suez Canal is a major shipping channel that connects Europe and the East Coast of the Americas via the Mediterranean Sea with India and South East Asia via the Red Sea and Indian Ocean through Egypt. As interconnected as the world is today, we thought it would be interesting to highlight some of the “butterfly effects” that we may experience because of this incident.
The largest problem with the blockage in the Suez Canal is not about the goods stuck on the Ever Given, but the massive traffic jam this is causing. Imagine the length of planes waiting their turn to land at JFK on a pre-COVID Friday evening. What happens if the plane taking off stalls out on the runway? The planes in the air need to circle or eventually be rerouted if the problem isn’t solved soon and delays cause a cascade of delays and missed connections, down the line. Every hour the Ever Given remains stuck is delaying $400million of goods from being delivered to their destination. 50 ships a day pass through the Suez Canal under normal circumstances and there are currently over 400 ships backed up waiting in line. Numerous companies, from Ikea to Caterpillar, have indicated this is going to delay deliveries, reduce inventory on shelves and potentially affect pricing. Among goods that are projected to have the largest supply shocks are oil & gasoline, coffee, and yes, dare I say another year of a Toilet Paper shortage… Give us a break!
Another global supply chain issue we’ve heard about for a few weeks now is the semi-conductor chip shortage. Ford, Toyota, Volkswagen, Honda and now the Chinese electric car company Nio have announced production halts due to chip shortages. This is not affecting just cars though and this has been going on for some time. iPhones, TVs and even refrigerators now are made with high tech chips that are currently tough to come by.
Amazingly, in both instances, supply shocks were created from one small moment in time. The chip shortage we are experiencing now was caused by just a two-week shutdown at some major semiconductor manufacturing plants a year ago due to Corona Virus. One ship getting stuck in the Suez Canal could have impacts on how long you need to wait for that new piece of Ikea furniture in the fall. All of this is going on at a time when the economy is expanding. As people get vaccinated and return to jobs they lost, they will be earning and spending disposable income again. However, what happens when the car they need now is not available? Do they spend more for a nicer one or settle for less? Maybe consumers lose negotiating power to get their car today? These small disturbances could result in big issues down the road.
The world is more globally intertwined now than ever before. For better, or worse.