Business

How the blockade of the Suez Canal by the cargo ship Evergreen will affect the retail market?

Marlena Walburg
Marlena Walburg
How the blockade of the Suez Canal by the cargo ship Evergreen will affect the retail market?

It would seem that the crisis caused by the ongoing Covid-19 pandemic is enough burden for many sectors of the global economy. Yet, this is not the end of the surprises. Meanwhile, on March 23, container ship Ever Given was stuck in the Suez Canal, blocking all traffic on one of the world’s busiest shipping lanes. As you can imagine, blocking one of the most important trade routes in this way has a huge impact on global supply chains. At the moment, it is known that on Monday morning, March 29, the ship was released. However, discussions about the cause of the incident are not calming down. The Suez Canal Authority says that an investigation on the Ever Given stranding is underway to determine if strong winds were the sole cause of the incident. Technical errors or a mistake by the crew are also being considered. Nevertheless, it is worth reflecting on the conclusions of this event and its consequences for the retail market. Is the use of modern technological solutions able to prevent such situations, and should retailers pursue it?

How did the ship get stuck in the Suez canal? Is the ship still stuck in the Suez canal?

On March 23, the container ship Ever Given ran aground in the Suez Canal. The 400-meter-long ship was hit by a sandstorm and heavy wind, throwing it off course. The ship landed on one side of the channel, with the bow wedged on one side and the stern almost touching the other, blocking it and preventing other ships from passing through. Evergreen was far south of the section of the canal, and so other ships could not get past it. As already mentioned, the authorities concluded that it was not the wind that could be the main reason for the blocking of the container ship, but a human or technical error. Tugs and dredgers dug to free the ship and clear the canal to resume traffic. On March 29, channel staff reported that the container ship had successfully moved, and a few hours later, Ever Given restarted its engines. This is a big advance, but Ever Given still does not swim further. The working teams have almost properly positioned the ship, but it is not yet known how soon the Suez Canal will be opened to ships.

How the blockade of the Suez Channel will affect global retail?

Undoubtedly, the situation on the Suez Canal will bring significant, long-term effects. In light of this event, looking at the scale of the retail market as well as consumer needs, retailers now face additional challenges.

The global retail market in numbers

  • The retail industry covers the journey of goods or services. Typically, it starts with the product being manufactured and ends with the consumer purchasing it from a retailer. Global retail sales were forecast to be around $26.7 trillion by 2022, up from around $23.6 trillion in 2018. 
  • The Covid-19 pandemic is having a huge impact on retail. Even before its outbreak, online stores, e-commerce platforms, and marketplaces were becoming more and more popular and turned out to be breakthrough forces in the global economy. Global e-commerce retail sales are estimated to have increased this year by 27.6%, which is $4,280 trillion.
  • Global e-commerce sales totaled over $ 3.5 trillion worldwide in 2019, and this number is expected to continue to grow over the next few years. This number is expected to continue to grow. Total retail sales are expected to exceed $ 6.5 trillion by 2023, of which over 22% will be online.
  • China is the world’s largest e-commerce market and exporter, with total online sales reaching close to $2 trillion in 2019. Together with the United States, these two largest economies account for over $2.5 trillion in online e-commerce sales, accounting for more than 70% of the total value generated worldwide.

What are the consequences of the blockage?

Given that roughly 10% of global sales supply flows through the Suez Canal, experts warn that blocking Ever Given will significantly delay the delivery of everyday goods to customers around the world. This can have a drastic impact on industries with existing commodity shortages and negatively affect markets already at risk of collapse. As a result, future deliveries can be ordered earlier than usual to compensate for the differences. Through the closed canal, container ships and tankers do not deliver food, goods or fuel to Europe, and the export of goods from Europe to the Far East is also disrupted. While it is estimated that the fuel market will not suffer critically from this situation, retailers with delays in the delivery of goods may lose a lot from it. Economists point out that even a short-term disruption of the flow of goods in the Suez Canal will have a knock-on effect for several months in the supply chain.

How much is the blockage costing?

According to various data, including Lloyd’s, it is estimated that the value of delayed goods in circulation is approximately $ 400 million per hour. This is based on the approximate value of the goods that travel through the Suez Canal every day. Besides, Lloyd estimates ​​westbound traffic in the channel at about $ 5.1 billion a day and eastbound traffic at about $ 4.5 billion a day. The Suez Canal is one of the busiest trade routes in the world. In addition to crude oil and natural gas, mainly consumer products such as clothing, furniture, and car parts are transported in this way. World importers have increasingly relied on this trade route in recent years to avoid massive congestion at US west coast ports and to speed up deliveries. The current situation has forced everyone to develop contingency plans, including a route that will go around Africa and last up to 9 days longer.

How could a software solution help resolve logistics problems?

Along with the rapid emergence of technologies, many new opportunities open up for entrepreneurs who want to improve their business and bring profits. The logistics industry is one of those that can implement unique innovations, such as blockchain or the Internet of Things, to manage, plan and improve operations. Modern systems supporting not only warehouse management or the so-called smart warehousing, driver support software such as Safeway, or fleet management programs are just a few examples.  Generally speaking, modern software supports process organizations, their monitoring, and management at every stage. You can reduce manual work by introducing automation, as well as reduce the risk of error with extensive analytical systems for risk assessment and work supervision. Thanks to greater efficiency and speed, you can react faster to potential threats and speed up the time of order fulfillment, and ship goods to customers much faster. As a result, you get consumer satisfaction and greater retention, as well as, in the long run, huge savings in both time, money, and resources. You gain more control over everything, as well as update your business and make it future-proof. 

Technology in supply chain

You already know that technology is your ally in gaining more customers, but also providing them with the highest quality services and business development. Thus, take a look at the most interesting contemporary solutions used in modern logistics.

IoT (Internet of Things)

The Internet of Things is now an increasingly popular technology used in this supply chain. IoT connects all devices with internet access and allows them to communicate with each other and share data. In this way, an extremely effective, more comprehensive system can be created. IoT helps reduce errors throughout the process by gathering all the data in one system. With the help of artificial intelligence, the collected data can be used to conduct comprehensive analyzes to prevent dangerous situations and better organization and planning.

Blockchain

By cleverly using blockchain, you can achieve many benefits for your supply chain business. Blockchain is safe due to its distributed nature and decentralization. The consistency and irrevocability of all transactions processed in the blockchain additionally eliminate the risk of fraud. Blockchain affects the streamlined flow of internal documents, as well as all processes. Besides, supply chains can handle complex data sets, eliminating unnecessary manual labor and increasing productivity. We discussed more examples of blockchain usage and benefits for the supply chain on our blog.

AI

Artificial intelligence allows machines to collect data, analyze it and learn from it. As a result, it can impact the creation of more efficient processes and the company’s development. Artificial intelligence is used for many tasks in modern supply chain businesses. With the help of the IoT, it can collect data and create a comprehensive strategy for a better supply chain.

So, what is the future after this impasse? Summary

The Suez Canal event primarily highlights the relative weakness of the water trade system, especially for flows for which the Suez Canal transits account for a higher percentage of total exports. Besides, options for shippers immediately after the incident are more limited. As delays progress, shippers will have to make a difficult decision whether to turn back and circle Africa or wait out. What can be expected in the coming days or possibly weeks are significant delays in the delivery of various goods. In the long run, blocking the Evergreen container ship in the Suez Canal will result in the search for more efficient ways of transporting goods, as well as greater consideration of technology in this and other processes related to logistics and supply chain. It is already visible that the share of technology in the management of logistics processes increases, and this trend is progressing.

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