e2open: How Disruption is Dismantling Global Shipping

After an extended pause – reasons for which largely remain unknown – Houthi rebels relaunched their attacks on container ships in the Red Sea in recent days, targeting a Liberian-flagged vessel travelling through the Gulf of Aden.

Such assaults have been disrupting important global routes for almost 10 months, with hundreds of commercial ships forced to detour thousands of miles around the Cape of Good Hope, close to the southern tip of Africa, to avoid being hit. 

Reduced shipping traffic has the potential to be particularly damaging for Asian, Middle Eastern and European markets, and the risk is heightened when one factors in climate and weather-related events. 

“The recent Houthi drone and missile attacks on vessels in the Red Sea that make passage unsafe, or the risk of freshwater shortages shutting down the Panama Canal and cutting off this vital waterway, are great examples of discrete events disrupting key commercial lanes,” explains John Lash, Group VP of Product Strategy at e2open, supply chain software specialist. 

“This kind of discrete event doesn’t stop international commerce as much as make journeys longer and more expensive as vessels take less efficient routes to avoid affected areas.”

Inefficiency and costs on the rise 

Ocean data gathered by e2open shows that, since ships began sailing around Africa to avoid Red Sea attacks, transit time for Asia to Europe has increased by an average of 11 days. 

For this important lane, cargo is now on the water 30% longer, meaning 30% more fuel is being consumed to carry goods between the same ports. 

Perhaps more importantly, longer sailing times mean each vessel makes fewer trips throughout the year, reducing effective fleet capacity by 23%. 

“Long story short,” John continues, “more ships are required to carry the same stuff to the same place, over longer distances, taking longer to arrive and at a greater cost. 

“While carriers stand to make more money, the added inefficiency, costs and lead times create more headwinds for shippers, European consumers and the economy at large. The same mathematics applies to other discrete disruptive events on any major shipping lane.”

Days of easy globalisation ‘over’

John also points to a “second level” of geopolitical disruption impacting supply chains, which is more structural and affects who can ship what, to where and to whom. 

These aren’t discrete disruptions that simply modify routes between ports, but fundamentally alter the movement of goods. Examples include escalating trade wars, physical wars and the rise of nationalism across the globe. 

These could lead to increased nearshoring activities, punitive tariffs or sanctioning the trade of strategic goods – like advanced chips – to adversaries. 

Stable trade lanes may no longer be viable, becoming irrelevant or even illegal. 

“The net result is the same: a structural rewiring of the global supply chain, making things more complex, with altered trade lanes, duplication of critical infrastructure and higher costs to shippers, carriers and consumers,” warns John. 

“It’s a good reminder that the days of easy globalisation are over.”

Taking advantage of SCM technology

John predicts that the world will likely see plenty more discrete and structural disruption in the coming years, especially the former. 

“As demonstrated by Houthi attacks in the Red Sea, low-cost drone technology has tipped the scale in favour of provocateurs and guerilla-style aggressors,” he says. 

“It’s easier than ever for small and poorly-funded groups to disrupt vital transport lanes, even when protected by naval forces. The war in Ukraine accelerates this trend, with more destructive drone technology using inexpensive commercial parts, further tipping the scale.”

However, while disruptive events like Red Sea attacks and structural forces like wars or advanced technology sanctions cannot be controlled by manufacturers and shippers, they aren’t completely helpless. 

John contends that the first step in navigating turbulent waters is to take full advantage of advances in supply chain management technology. This has the potential to connect the dots between fluid logistics and regulatory landscapes for better outcomes in a fast-moving world where the reality on the ground – or the water – can change overnight.

“What’s squarely in our control is how we manage change in the face of disruption by building supply chains that are flexible and adaptable instead of rigid and brittle,” he concludes.

“The truism of ‘the one thing we can count on is change’ has never been more relevant as we go into a period where the risk of disruption to global shipping is unlike anything since the Second World War.”

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