Supply chain disruption planning starts with one question: what happens to your business if a key shipment is four weeks late? In 2021, many small firms across Asia and beyond learned the answer the hard way. A plan made now costs little. A scramble later costs a lot.
Why 2021 changed the picture
On March 23, 2021, the container ship Ever Given ran aground in the Suez Canal. It was freed on March 29 after a six day effort that used ten tugs. By then, more than 350 vessels were waiting to pass, and clearing that line took time even after the ship moved.
The canal was only one shock. UNCTAD, the United Nations trade body, wrote in April 2021 that the shortage of empty containers seen since late 2020 was unprecedented. It also named port waiting times, labour shortages, cancelled sailings and thin trucking capacity as pressures. It warned that it could take several months to settle.
The lesson for a small firm is simple. Delays can come from many places at once, and you cannot fix them from your desk. You can only prepare.
Sources: Maritime Executive, "Suez Traffic Resumes After Salvors Refloat Giant Boxship Ever Given" (March 2021), https://maritime-executive.com/article/salvors-refloat-bow-of-the-grounded-boxship-ever-given; Reuters report of March 29, 2021, carried at https://cnbcafrica.com/2021/suez-canal-says-traffic-in-channel-resumes-after-stranded-ship-refloated; UNCTAD policy brief as reported by Shipping Australia, April 23, 2021, https://www.shippingaustralia.com.au/covid-induced-a-booming-trade-surging-rates-and-a-short-supply-of-boxes-unctad/.
Step one: map your suppliers
Write down every supplier that feeds your top five products or services. Then go one step back. Who supplies them? Many firms find that two suppliers rely on the same factory, port or shipping line.
For each item, note four things: the supplier, the country, the route it travels and the usual lead time. Mark any item that has no substitute. Those are your single points of failure.
A one page sheet is enough. Keep it where your buyer, your finance lead and your owner can all see it.
Sources: Practical guidance drawn from the 2021 disruption reports listed above.
Step two: set buffer stock where it matters
You cannot stock everything. Rank items by two scores: how much revenue they protect, and how long they take to replace. Hold extra stock only for items that score high on both.
Start small. A few extra weeks of cover on your top items is often enough to ride out a late ship. Check what the stock costs you in cash and storage, and review the level every quarter.
Freight costs matter here too. Drewry's World Container Index stood at $8,985.83 per 40 foot container on July 22, 2021. That was 349 percent above a year earlier. Its year to date average of $5,979 compared with a five year average of $2,073. When shipping costs this much, a late rush order costs far more than planned stock.
Sources: Drewry World Container Index, assessment of July 22, 2021, as reported at https://www.hellenicshippingnews.com/drewry-world-container-index-still-moving-higher-now-349-year-on-year/.
Step three: line up backup routes and suppliers
For each single point of failure, find a second option before you need it. That can be another supplier, another port or another mode of transport.
Ask the backup supplier for a small trial order. This tests quality, paperwork and lead time at low risk. A supplier you have never used will not rescue you in a crisis.
Talk to your freight forwarder about alternatives. Ask which ports are congested, which services are being cancelled and what a different routing would cost. Drewry's July 2021 data shows how wide the gaps were: Shanghai to Rotterdam averaged $13,066 per 40 foot container, while Shanghai to Los Angeles averaged $9,953. Knowing your options early lets you compare them calmly.
Sources: Drewry World Container Index, July 22, 2021, at the Hellenic Shipping News link above; UNCTAD policy brief as reported by Shipping Australia, April 23, 2021.
Step four: tell customers early and plan for cash
Customers forgive delays more easily when they hear about them early. Quote realistic lead times. Add a small cushion for long routes.
Disruption also ties up cash. Stock sits in a container at sea while you still pay staff and rent. Check your cash cover and talk to your bank before you need credit, not after.
Review key contracts. Know who pays when a shipment is late, and what the terms say about price changes.
Sources: Practical guidance drawn from the 2021 disruption reports listed in this article.
A simple plan you can finish this month
Week one: map your top suppliers and routes. Week two: score your items and pick the few that need a buffer. Week three: contact one backup supplier and your freight forwarder. Week four: write down who decides what when a delay hits, and set a date to review the plan.
UNCTAD expected turbulence for several months. Firms that map, buffer and prepare backups will cope better with whatever comes next. This is general business information, not legal or financial advice.
Sources: UNCTAD policy brief as reported by Shipping Australia, April 23, 2021.
Sources
- Maritime Executive, Ever Given refloat report, March 2021: https://maritime-executive.com/article/salvors-refloat-bow-of-the-grounded-boxship-ever-given
- Reuters via CNBC Africa, March 29, 2021: https://cnbcafrica.com/2021/suez-canal-says-traffic-in-channel-resumes-after-stranded-ship-refloated
- UNCTAD policy brief via Shipping Australia, April 23, 2021: https://www.shippingaustralia.com.au/covid-induced-a-booming-trade-surging-rates-and-a-short-supply-of-boxes-unctad/
- Drewry World Container Index via Hellenic Shipping News, July 24, 2021: https://www.hellenicshippingnews.com/drewry-world-container-index-still-moving-higher-now-349-year-on-year/