Supply Lines

The world is having problems with logistics. Cargo ships are backed up just about everywhere. This is mostly COVID-19 related. Some of it has to do with how much everyone is ordering. But a bigger part has to do with whether the port and land transport facilities are working at full speed. They aren't. So there's a backlog.

This predates the problems in the Suez Canal.

The kind of backlog of container ships that we’re seeing now started around the end of last year, said Kip Louttit, executive director of the Marine Exchange of Southern California.

“We jumped from zero to one container ships at anchor to about 35 the first of January,” he said.

Ships are waiting longer inside the port, too, according to Gene Seroka, executive director of the Port of Los Angeles, and fulfillment centers are overloaded.

“When a container is waiting at a warehouse, it’s now sitting for about eight days. And that’s usually three and a half days during pre-pandemic times,” Seroka said.

And now we've had a ship blocking the Suez for 5 days, by what's very close to the largest ship in the world, with no end in sight (although it could just as easily be tomorrow as next month). Here's an image from Daily Overview showing the traffic jam:

The Red Sea is on the right. The specks are anchored ships. The canal is at the top left, with the blockage in the corner. As of today, there are about 320 ships anchored at either end of the canal. And while longer than the Panama Canal, the Suez is capable of handling ships about 3 times as large.

I tried to find a decent map that shows the importance of the Suez Canal to global trade, and I gave up. All the choloropleths and cartograms I found seemed rather biased by map scaling issues to show the Suez as narrow rather than busy. So frustrated I didn't link to any. Anyway, about $5B of goods passes through the Suez Canal, each way, each day. That's the size of ... Italy.

The alternative to going through the Suez is to go around Africa, which adds about a third in time and costs to the trip. That's a lot of potential inflation.

Anyway, macroeconomists need to keep an eye on this one.

P.S. Those who had me for principles may have been lucky enough (I don't do it every semester, but there are many videos of classes playing it on the internet) to do the "Beer Game" simulation in class.This is a classic classroom simulation (originally based 60 years ago on beer distribution) that gets at the problem of disrupted supply chains. In short, you can readily get something called a bullwhip effect where ripples from a single disturbance reverberate through an entire system.