MERISTEM INSIGHTS

I THINK WE ARE GOING TO NEED A BIGGER BACKHOE

The Suez Canal is a crucial waterway that runs across the Isthmus of Suez in Egypt. On any given day, approximately 90 container ships pass through the canal and it services around 12% of the world’s trade on annual basis. Last week, high winds drove the Ever Given, a 200,000-ton ship the length of the Empire State Building, aground and now the route has been brought to a standstill. Salvage companies are working tirelessly to free the ship with the use of tugboats and backhoes, but the work has been slow. Initial estimates that the work would take a few days have now turned into weeks.

The queue of ships waiting to pass through the canal continues to grow and experts estimate $300 billion in commodities and goods are stuck. As a result, shipping companies are considering the 6,000-mile detour around South Africa’s Cape of Good Hope. For many businesses utilizing just-in-time inventory management, the closure is creating major supply chain headaches. In fact, Lloyds of London estimates the blockage in the canal is costing the global economy an estimated $400 million dollars per hour – and growing. The Suez closure highlights the interdependence of trade and the power of ripple effects in a global chain already strained by the pandemic.

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