Threats to eCommerce logistics are top of mind after the Suez Canal blockage earlier this year. The massive disruption reminded every company that what happens a world away might still harm your ability to serve customers. There are choke points in every supply chain, whether they’re the only road that leads to your office or one of the few canals where most of the world’s oil and cargo transit.
The local economy is global, and vice versa. So, we’ve put together this post to discuss some of the significant risks facing your business as goods and raw materials move around the world. The locations of your eCommerce logistics, manufacturing, and fulfillment partners will directly guide where you’re at risk. However, the backup plans identified below may increase your delays if they push traffic to the lanes you commonly use.
Areas considered include:
- Suez Canal
- Panama Canal
- Danish Straits
- Strait of Malacca
- Strait of Hormuz
- Northwestern U.S. and Canada
- America’s roads and infrastructure
Take a look and write down any questions you have as you go. Know where you might be impacted and if you need a game plan for a specific scenario. Create an understanding of your existing supply chain and partner locations. And get a handle on what to ask when switching to a new 3PL in response to these risks.
6 international risk scenarios to consider
1. Suez Canal blockage
The Suez Canal manages more than 10% of all global shipping each year, and the blockage in early 2021 was a global disruptive event. The issue highlighted how precarious some shipping could be, with more than 4 million oil barrels moving through the location daily.
While the Suez offers two-way travel, traffic is limited to one direction at a time. Any issue will cause delays that reverberate through the one northbound and two southbound conveys that travel each day.
Impact of blockage on eCommerce logistics and more
It took six days to free the Ever Given and allow for transit of ships through the canal to resume. While this happened, approximately $15B lost per day due to other shipments’ accrued delays.
The Cape of Good Hope around Africa’s southern tip is the next-fastest way to transit goods between Europe and Asia. It adds almost a month of travel time for most ships.
2. Panama Canal risks to eCommerce logistics
The Panama Canal had more than 13,000 transits in 2020, moving more than 255 million tons of cargo and international trade. The canal has been widened and dredged for years now to make room for Panamax ships, but choke points where a blockage like the Ever Given incident in the Suez could theoretically happen. The narrowest parts of the Panama Canal are the three lock sections, which are 110 ft wide. An 8-mile segment known as the Culebra Cut is 630 ft wide in straight sections and 730 ft wide on curves. They’re narrow enough for a ship to block passage if it were to turn perpendicular to the waterway.
The Panama Canal does use tugboats to move vessels through sections of the canal to pilot ships through, which is likely to reduce the risk of a blockage.
Risk of disruption
Certain areas adjacent to the canal could give way because of a landslide (as a tropical country, Panama receives tremendous seasonal rainfall) and fill the canal with debris. Additionally, two fault lines cross the canal near the country’s Pacific side and could trigger some combination of landslides or damage the locks. From a political standpoint, Panama is relatively stable, and the chances of conflict that could disrupt transit through the canal are pretty low.
Impact of blockage
Impact due to disruption would be most severe on Asia-Americas shipping. Companies relying on Chinese exports or raw materials going the other way for manufacturing in China would be especially hard hit.
Shipments would need to go around Tierra del Fuego in South America if the Panama Canal was impassable. During the summer months, the Northwest Passage through the Arctic Ocean is an option for freighters and ships.
3. Potential blockage in the Danish Straits
The Danish Straits connect the Baltic Sea to the North Sea and are shared between Denmark, Sweden, and Germany. The straits include the Oresund and Fehmarn Belt, the Great Belt, and the Little Belt. The Great Belt handles most large vessels, and traffic supports significant oil transport between Russia and Europe, including more than 5 million barrels per day.
Risk of disruption
The Danish Straits are generally considered one of the most secure oil chokepoints globally. Many projections say they’re unlikely to be impacted by regional security concerns because of their value to all parties. However, risk scenarios around the Danish Straits have been on the rise (in terms of model scenarios) since 2018.
Armed conflict between Russia and NATO (Denmark, Norway, Latvia, Lithuania, and Estonia are part of NATO while Sweden and Finland are not) could potentially turn the straits into a war zone. While Russia has sent submarines into the Stockholm archipelago and Sweden has begun public awareness campaigns in recent years to prepare citizens for a Russian invasion, the chances of outright war are higher than zero but still unlikely. However, the Russian presence in Crimea since 2014 gives reason to believe that it is possible.
Impact of blockage
Roughly 5% of global petroleum products pass through here. In 2017, 30% of EU petroleum imports and 39% of total natural gas imports came from Russia. If the Danish Straits became impassable, it would likely be in conjunction with a war economy in Europe. Non-Russian oil producers would have the advantage of filling the gap in supply.
Regionally, the Straits of Bosporus and Dardanelles, known as Turkish Straits, provide a small alternative for emergencies. The Montreux Convention currently guarantees that civilian vessels can travel through both straits during peace and war times. Unfortunately, these lanes have seen several shipping accidents in recent years.
What may compound issues further is the potential creation of a canal in Istanbul. Turkey President Recep Tayyip Erdogan wants to be on the same scale as Panama or Suez. It’s a complex issue, but at the heart is the new canal would not be subject to Montreux. Critics say that it may make it harder for Turkey to stay neutral in potential regional conflicts and increase the likelihood of a coup within the country.
4. Strait of Malacca and regional strife
Roughly 30% of global trade passes through the Strait of Malacca, including the 2nd highest oil volume after the Strait of Hormuz. Piracy was once a huge issue. Southeast Asia was the location of 41% of the world’s pirate attacks between 1995 and 2013. By 2017, however, the number of piracy-related incidents had dropped to zero. That reduction may help it play a larger role in eCommerce logistics in the coming years.
Risk of disruption
Piracy disrupting the entire Strait is probably unlikely. There is high cooperation between Malaysia, Singapore, Indonesia, and other nations that are stakeholders in safe passage through the Strait of Malacca to prevent it. However, a standoff between India and China could result in the Strait being cut off.
Impact of blockage
This scenario comes with some of the greatest threats to vessels and trade because of regional tensions. Hostilities between China and India, for example, increase the chance that a country may start to seize vessels that move through the Strait. As countries would look for partners to join their side of a dispute, the risk of action taken against vessels increases.
A blockade or dispute has the potential to trigger conflicts between rival navies.
There are some alternatives, but they may also become points of tension during a conflict. There is the Northern Sea Route available during the summer, but bad weather prevents it from being a year-round option. China is also building a connection to the Pakistani port of Gwadar to give them direct access to the Indian sea, part of the China-Pakistan Economic Corridor.
5. Iran and the Strait of Hormuz
The Strait of Hormuz is a strait between the Persian Gulf and the Gulf of Oman. It’s a global chokepoint because it essentially serves as the only sea passage between the open ocean and the Persian Gulf. Almost 20% of the world’s oil passes through the Straight. Qatar, one of the world’s most significant liquefied natural gas (LNG) exporters, sends nearly all its LNG through Hormuz.
Risk of disruption
Relatively high. President Biden is currently trying to get Iran back to the table to discuss its nuclear program after the Trump Administration left the Iran Nuclear Deal in May 2018. Iran has threatened to disrupt oil shipments through the Hormuz if the U.S. harms the Iranian economy. Alleged sabotage of a nuclear site on April 10, 2021, points to tensions being as high as ever.
Impact of blockade
In the event of a direct war between Saudi Arabia and Iran, the possibility of oil shipments coming out of the strait being either destroyed or blockaded becomes quite feasible. In 2018, oil flow averaged 21 million barrels per day or 21% of globally-consumed liquid petroleum. Analysts forecast that the cost of gas could leap to $100 per barrel.
In the event of an Iranian blockade of the Strait of Hormuz, The UAE and Saudi Arabia have oil pipelines with a total capacity of 6.8m barrels per day (as of 2018), but this is still well below the amount that leaves the strait by ship.
Energy independence, via domestic oil production and non-fossil fuel reliant energy grid, can reduce the need for imported oil from Middle Eastern states.
6. Regional natural disasters: Cascadia Subduction earthquake
The Cascadia Subduction Zone (CSZ) has a “megathrust” fault more than 1,000 km long, running from Northern Vancouver Island to Cape Mendocino, California. Earthquakes along faults like this can be the largest in the world. Evidence suggests that the CSZ produced a 9.0 (or greater) earthquake in the past and will again one day.
Risk of disruption
This is remarkably high because there is a 33% chance of a significant earthquake in the Pacific Northwest in the next 50 years.
Estimates say a major earthquake could do tens of billions of dollars in damage and cause tens of thousands of deaths. It would do catastrophic damage to Seattle-Tacoma airport (9th largest by passenger volume, 16th for freight in the U.S.) and Port of Vancouver (4th largest West Coast port, 5th largest in North America). Threats to individuals and businesses in the area are extremely high because the fault was only discovered in the last few decades, and existing infrastructure does not meet earthquake safety recommendations.
Impact of disaster on eCommerce logistics
Oregon and Washington account for 4% of total U.S. GDP and would be largely disrupted by any fault. Freight moving through California would also face significant delays due to damage and the disaster response. Interstate 5 and the 101 freeway provide a direct link to Oregon and Washington, while the 101 also runs directly through fault regions in Northern California.
The quake should not be strong enough to significantly damage the Ted Stevens Anchorage International Airport, the second-largest by freight volume, and ports farther south in California should be operational. Freight that can move along Interstates 10, 15, and 80 to distribution centers to locations such as Salt Lake City, should allow companies to safely position goods and minimize disruption.
ECommerce logistics risks from American infrastructure failures
The American Society of Civil Engineers says that 58% of American roads rank “fair” to “poor” and that more traffic is traveling on low-quality roads than in past years. Traveling on these roads leads businesses and citizens to spend more than $130 billion extra on vehicle repairs and operational costs. The growth in eCommerce and reopening of the American economy will further strain our roads, bridges, rail, and other transit options.
Your eCommerce logistics capabilities must be robust to deal with today’s roadway concerns.
The Biden Administration has proposed a $2 trillion infrastructure package that would dedicate $115 billion for road and bridge maintenance and repair, $80 billion for railways, and $20 billion for road safety improvements. Other spending categories could be used to improve road infrastructure or reduce miles traveled on interstates.
Risk and impact may vary
The risk of disruption to your fulfillment and eCommerce logistics operations grows as you move further across the U.S. It also adjusts based on the number of fulfillment centers you have. Your risks increase the larger your footprint and the fewer distribution locations you can leverage to deliver goods to eCommerce customers.
Impacts also depend primarily on where infrastructure failures occur and how extensive they are. Expect ongoing construction and maintenance to routinely cause delays. Increasing lead time and inventory kept on hand can help to mitigate some of these concerns. However, last-mile disruptions likely will continue to be commonplace.
How can you respond?
Today, the best option for American sellers is to have a diverse set of partners and suppliers across the entire supply chain. Don’t let your eCommerce logistics efforts become complacent.
Expanding your manufacturing options and inbound partnerships will help you minimize disruptions and delays when a global event occurs. However, it can be tricky to manage these relationships and meet minimum order demands from multiple production partners. If you stick with one provider, look at their existing network and location. Seek out alternative land and ocean routes that they may be able to use to avoid regional disruptions.
On the domestic side, either you or your 3PL should run multiple fulfillment locations. Warehouses in different regions of the U.S. offer multiple protections. First, you’re not limited to single routes for inbound freight or outbound order fulfillment. An issue with a major interstate or bridge is unlikely to stop traffic to two distinct sites. Second, you’ll be able to stage goods closer to customers in multiple areas, reducing your shipping costs for customer orders. And third, you have a backup if a natural disaster occurs at a fulfillment site. Orders can still be filled, and revenue will continue to flow into your company as you try to get that facility back up and running.
Global supply chains are complex, and you need a solid plan to protect your operations. The best weapons are knowledge and preparation. Here are a few additional articles worth reading as you start to build out your resiliency plan: