Covid-19, Brexit and a ‘Gust of Wind’: The Perfect Storm for Global Supply Chains

Covid Anniversary Blog

Almost a year ago I wrote a piece for the ISR Covid-19 blog on what might happen to business models due to the pandemic. Part of my focus then was about the role of global supply chains, and particularly how disruptions in those supply chains can have a detrimental impact on a business. I thought about this again when I saw the news footage of the Ever Given, carrying 18300 shipping containers, ‘stuck’ in the Suez Canal.

On the morning of March 23rd strong winds buffeted this massive cargo ship leading it to collide with the canal banks and getting stuck.

Whilst I know at an abstract level about the vast flow of shipping containers across the world, until this point I had no idea the sheer scale of traffic down this 120-mile corridor connecting the Mediterranean Sea and the Red Sea.

An article from BBC News sums up the importance of this canal which transits approximately 50 ships and 12% of global trade daily. 369 ships were parked in a traffic jam behind the Ever Given stopping approximately $9.6bn worth of daily trade, or $400m and 3.3 million tonnes of cargo an hour. These numbers are vast and show the scale of movement of goods around the world and the vulnerabilities of key pinch points.

Anxious owners of the cargo on board (and stuck in the traffic jam around it) had to wait 6 days before it was freed. But the story doesn’t stop there. The long terms impact on the supply chain are expected to last for months.

But behind this global disruption were also the individual stories illustrating the impact on small firms. These include Jack Griffiths who is still waiting for their shipment of Snuggy Dressing gown/blankets.

The delay is also causing cashflow issues and the looming possibility of the seizure of cargo to pay the Ever Given ‘bill’. The Suez Canal Authority is also claiming $916 million in compensation.

The Ever Given saga also serves to remind us again how the global pandemic as well as more localised issues such delays at ports attributed to Brexit, and the on-going protests about the movement of goods in Northern Ireland. This leaves small businesses in particular, vulnerable to further disruption in supply, associated risks to their cashflow and added costs of sourcing replacements and/or failing to meet their contractual obligations.

The blockage of the Suez wasn’t really on most small businesses radar – a bit like a global pandemic! All business need to understand their supply chain, how vulnerable they might be even to ‘once in a lifetime’ events and what alternatives might exist. Supply chain resilience should now be on every business’s agenda.

Diane Holt is Professor of Entrepreneurship at Leeds University Business School. This piece is written as a follow-up to a post originally published in the COVID-19 blog on 7th May 2020 by Diane which can be found here.

Photograph: In this photo released by Suez Canal Authority, the Ever Given, a Panama-flagged cargo ship, is pulled by one of the Suez Canal tugboats, in the Suez Canal, Egypt, on Monday, March 29, 2021. Photo credit: Suez Canal Authority via AP.

Temporary or Fixed? Changing Business Models in a Global Pandemic

From lack of hand sanitiser to toilet paper, cargo stuck in ports, crops unpicked in fields and a work force relocated to their homes; organisations and consumers are adopting new approaches to deal with these shortages. With amazing flexibility and agility some firms have shifted their business models, invested in people and processes, explored new markets and created new products, whilst others appear to be lost and floundering.

Some firms have found that the key components and products they might need are just not available. This might be because their suppliers are temporarily/permanently shut down, transportation issues, or there just isn’t enough stock to meet demand. How are they managing these challenges?

Going local? This might mean (re)localising their sourcing (either regional or national) even when the costs are higher. A key question would be what happens to the ‘new’ suppliers when the break in the supply chain is repaired? Will firms stay loyal to those that helped them out?

Ramping up production. We see flour mills and toilet paper manufacturers etc all maxing out their production lines. Investments in short term ramp up will need to be repaid, and major alternations need to be worth the investment on a long-term basis. Flour mills and loo roll manufacturers are cleaning up right now (some literally) – but what about tomorrow?

New sources of supply. Across the UK firms are reimagining their business models to meet this demand. In Scotland the Wee Farm Distillery has switched production from Gin to hand sanitiser. You can even have the refill bottle posted out – just be careful as it comes in an ex-Gin bottle! Will this become a permanent side-line, or just an opportunistic diversion?

Extending business models. Other firms are being creative in switching their delivery modes and customer base. Wholesalers like Delifresh have moved from supplying cafes and hotels to household delivery. New items get added almost daily to their inventory. Will this investment pay off in a new customer base post this crisis? Even the big supermarkets have reimagined and invested with Morrisons quickly scaling out (with some teething issues) a click-and-collect service. Can these firms use these opportunities to take this market share long term?

Investing in stockpiles. We may see firms increase their inventory. Opposite to a just-in-time approach this will include costs – for storage facilities, monitoring and the cost of these stockpiled assets. Organisations need to be able to absorb these costs and to manage those inventories which might have expiry dates -like personal protective equipment. Longer term, will shareholders agree to absorb these costs? 

Ultimately sourcing will be a balance between risk, costs and convenience. An article in the Journal of Psychology says it takes an average 66 days to form a habit – from the first day of lockdown that’s the 27th May. So I wonder how many of these changes become permanent?

Professor Diane Holt, University of Leeds, Centre for Enterprise and Entrepreneurship Studies and contributor to the ISR/Edge Hill Business School Research Training series.

Photo by frank mckenna on Unsplash