Suez Canal blockage serves as reminder for key supply chain risk lessons

The Suez Canal in Egypt, one of the world’s busiest trade routes, will likely reopen late Monday or early Tuesday after being blocked by the massive container ship Ever Given that ran aground last week.

The six-day blockage snarled supply chains worldwide. Between 10-12 percent of global maritime trade transits through the canal, according to research by Allianz. At present, more than 350 idling ships are waiting to enter the canal at either end; dozens more decided not to wait, instead rerouting around the Cape of Good Hope.

The Ever Given’s grounding is just the latest unexpected incident in the past 12 months to cause severe supply chain disruptions around the world, joining the coronavirus pandemic and a month-long freeze of oil and gas supplies in Texas as high-profile cases.

I wrote a story last April with advice from experts on how to deal with supply chain disruptions caused by the pandemic, and the lessons learned then—paraphrased below—are as relevant today:

The first thing to do is determine criticality. Which third parties and which goods and services are absolutely critical to the operation of your business? Once you’ve determined criticality, focus on which risks are most worth watching. Geography is top-of-mind.

Think of your supply chain not as a series of links, but as a web. Some suppliers are interconnected in many places, and touching one node in the web “can be felt in every link that’s connected to it,” said Chris Lynskey, vice president of product at Interos.

The key to navigating these new risks is to find alternative and duplicate suppliers or to be able to ramp up previously underused suppliers quickly. Companies should be working to complete due diligence on new suppliers, having them ready to deliver quickly.

And though speed is important, corners shouldn’t be cut in supplier screening. Onboarding new third-party suppliers without adequate screening opens companies up to whole new areas of risk, said Daniel Hartnett, associate managing director for compliance risk and diligence at Kroll, a division of Duff & Phelps.

Recognize your third parties are dealing with the same issues your business is dealing with. This is a shared experience.

In good times, a supply chain is a collection of trusted relationships. Many of these suppliers have proven reliable over many years and have acted in good faith. Situations likes these are not good times, obviously. Even so, there are opportunities on both sides for open negotiation, flexibility, and a joint search for solutions.

Maintain a regular dialogue with your most vital suppliers. A lack of communication could be a red flag worth caring about.

“This is not the time to believe that no news is good news,” Hartnett said.

In all conversations with your suppliers, “You want to make sure you’re speaking with a universal voice. You want to have a consistent message,” said Julie Park, product liability litigator at Morrison & Foerster. One department should not be telling suppliers one thing, while another department is saying something else.

Every conversation with third parties needs to be documented—calls, video calls, e-mails, texts, voicemails, and more—and those contacts between all your company’s divisions and departments need to be stored in a central location.

“You want to keep detailed records of the scramble you’re going through, because this is going to play out over months and years,” said Mark Zebrowski, a Morrison & Foerster commercial litigation partner. Having detailed documentation will protect your company if relationships sour and the lawsuits start flying, he said.