Avoiding supply-chain bottlenecks: what can history teach us?

Technology failure and natural disasters have existed throughout history and continue to influence marine safety, despite attempted mitigations such as constructing engineering systems to improve performance or forecast weather. Meanwhile, the news continues to report more disruptive events, ranging from changing trade regulations and international geopolitical events to the global manufacturing boom that has resulted in supply chain delays. The pandemic has only exacerbated the situation. While the number of ports and capacity of canals was significantly reduced to make operations safer, the demands for consumer goods were surging: the global trading system’s capacity simply no longer meets the demand. This reduction has further increased the bottleneck situation, driving up shipping costs and feeding into the cycle of demand-versus-supply.

In recent decades, improving port performance has been the focus of international trade sectors in many countries, increasing efficiency at sea and encouraging economic growth. The attempts have involved operational reforms to monitor port activities and the application of new technology. Containerisation, for instance, employs standardised containers and cranes in a generic loading process, leading to a faster and more effective transportation system. The benefits of highly efficient terminals may be negated, however, if freight logistics remain inefficient and shipping lanes suffer from blockages, a very common situation – just cast your mind back to the Suez Canal obstruction earlier this year. Many vessels chose to reroute and use alternative passages, rather than waiting for an unknown period to make their pass.  Thus, it is of paramount importance for authorities to promote a holistic and multi-disciplinary approach towards improving maritime transportation, enabling a safer world. 

During the five-day internship with Lloyd’s Register Foundation, my role has been to examine literature from Lloyd’s Register’s online collections and publications on ports, logistic systems and shipping lanes. I focused on the Suez Canal for this review, examining previous difficulties and solutions to analyse the insights they might be able to offer. What can we learn from past experiences? Why has the backlog at sea become a pressing issue in recent years? And how can we amend past solutions in order to improve our own approach, and prevent failures from happening in the future?

What is the point of looking to the past? The closure of the canal from 1967 to 1975 serves as a “natural experiment” for answering this question.1 At the time, for countries that relied heavily upon the canal for exchange, the costs regarding trade profits and international relations were substantial as the distance to travel for the purpose of trading increased dramatically. The closure caused an average fall in trade, and consequences clearly ran the gamut, from trade to income to economic growth. For further information, please see the literature review.

Deepening and expanding the Suez Canal

During the period between the opening of the Suez Canal in 1869 and the Six-Day War of 1967, many programs were implemented to meet the growing demand of shipbuilding industries and bigger ships. These resulted in a deeper and broader canal with a water sector of 1800m2.

Further improvements were made to the capacity of the canal in 2001. By redesigning the paths in the channel, the radius of each path reached more than 5000m and the permitted shipload attained 210,000 tons.2 Expanding the Suez Canal could, then, accommodate a  higher volume of trade by improving access to larger ships with larger capacities.

New channels as part of the Egyptian Suez project

The 2001 Egyptian Suez project also included constructing a bypass running from Port Said at the north to the Port Fouad at the Mediterranean east. Thus, container ships going north can directly reach the sea without going into the harbour of Port Said.

Further, due to rising demands for a two-way traffic system, Egypt’s Suez Canal Authority announced an expansion project that essentially doubled its capacity in 2014. The project took one year to finish, adding a new 22-mile lane branching off the newly-improved main channel as well as deepening and widening some of the choke points. As a result, ships can pass in both directions simultaneously when travelling in certain parts of the canal.3

Expanding the Suez Canal in these ways, however, was not sufficient to prevent a modern container ship, the Ever Given, from running aground sideways in March 2021. About 400 vessels were waiting to make their pass and many more rerouted to take a much longer journey while the stuck container was being dislodged. Ships have run aground before, but most of these incidents were swiftly resolved. However, in this case, the weeklong disruption did not untangle itself quickly and had long-term global ramifications.

The Egyptian Suez project apparently was not enough to stop all the issues with the canal. This incident led to a heated debate about whether a canal with its narrow width and shallow depth could accommodate future international trade, considering that vessels are becoming ever larger.

Increasing the capacity of vessels

Some may suggest that one seemingly feasible solution to the container capacity issue is to build huge vessels travelling slowly between the main hubs to reduce the number of ships and the resulting Suez Canal congestion. Even provided there are no technical problems with that scenario, the likelihood of such a concept working in reality is significantly limited by most of the major terminals and routes.

The primary concerns are physical transit problems, practical difficulties associated with loading and unloading, and extremely high losses if encountering unexpected danger. Both Malacca Straits and the Suez Canal have set an 18,000 TEU size limitation, and the Mubarak “Peace” Bridge over the Suez Canal restricts the heights of vessels.4

For these reasons, it is unlikely that such mega-container ships will be built in large numbers in the foreseeable future. The optimum size for vessels for container trading will probably continue to remain in the medium-sized range. Simply increasing the size of the ships in response to the Suez Canal congestion problem is just not a practical answer.

Negotiation

Global development this year has gradually recovered from the shock of COVID-19, and most of the big trading nations have reopened from lockdown to trade. But due to the spreading of the new variant, shortages of containers and clogged terminals remained problems through the first half of the year.

However, according to the Trade Talks podcast, suppliers have begun to negotiate their annual shipping contracts.5 Part of the deal is to spread the shipping at a fixed price throughout the year instead of introducing a big spike in shipments all at once. This regular practice might be the answer to mitigating the congestion issues around the world; hence, it is expected that the shipping industry will not return immediately to its once-bustling state.

Land railway

The Suez Canal Zone has tried to increase the capacity of its transportation in recent years. For instance, Egypt has recently proposed to design and install a “high-speed electric rail network” alongside the canal that will shorten travel time and share some of the traffic pressure with the shipping lane.

Arctic navigation

Much emphasis has been placed on opening up new shipping lanes through the Arctic, and these routes are considered to be feasible since ice cover is diminishing. The Northern Sea Route, previously known as the Northeast Passage, could shorten transit distance from northwest Europe to Asia by 30 percent as compared with the traditional southern route through the Suez Canal.6

This potential has stimulated even stronger interest in the ongoing project of icebreaker design and the winterisation of vessels — the ability to function at sub-zero temperatures in order to stay safe in risky ice-bound regions.7 On this basis, high-performance ships will be of the utmost importance when using the Arctic Sea Route and expanding to new trade markets.

These explorations for new land and sea routes are more expensive and require a long period of development. And yet once completed, they could bring a new era with greater possibilities.

History has shown that shipping congestion in trade routes has serious consequences, and considerable time is required to alleviate congestion. Expanding and improving existing traffic lanes remains crucial. However, a more comprehensive approach is needed, incorporating logistical systems with more integrated negotiation methods and exploring additional trading routes throughout the world to achieve greater capacity in the global trading system.

Take a look at Nora's literature review for even more insights on this subject!

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily represent those of the Lloyd’s Register Group or Lloyd’s Register Foundation.