Reflections on the Impact of the Suez Canal Blockage: Reassessing Enterprise Risks

Ricardo tries to see the incident from different perspectives. From the standpoint of Evergreen Marine (ship operator) to the other shipping companies.

From the perspective of the Egyptian government to the perspective of countries that rely heavily on global trade.

Finally, he discusses your view as someone managing a project that relies on equipment or supplies coming from the other side of the world.

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Episode transcript

The transcript is generated automatically by Podscribe, Sonix, Otter and other electronic transcription services.

Ricardo (4s):
Hello, everyone. Welcome to the 5 Minutes podcasts. Today I spent pretty much all day watching the news of the evergreen ship that was stuck in the Swiss canal and why I did that. First of course, I'm an engineer, but I'm also passionate about risk management. And what is the impact of that? The first thing we need to understand that probably for many, many people in many of you that are listening, the Swiss canal is something that you just saw quickly on the books when you were studying history. And very few people know exactly what is the Suez canal about. So the Swiss canal is in Egypt, very close to Israel, almost in the border.

Ricardo (45s):
And it's a shortcut. So instead of taking 12 days of travel crossing, the whole Africa to reach out to Europe, for example, you take this shortcut, then, then you've saved this 12 days around 10% of the global trade. And this is incredible cross that channel. And this is around $10 billion each day. So these are absolutely massive numbers, right? All aisle livestock containers, cars, machinery, everything goes through that channel. And the channel where evergreen was stuck is 300 meters wide.

Ricardo (1m 26s):
Just to realize this in miles it's symbolizing 0.2 miles. So now realize with me that 10% of the global trade rely on how confident this 0.2 miles or district hundred meters is free or stuck. So now a ship that is around 400 meters per us, and get stuck and suddenly you Hout global trade. And this is pretty much in Cranbourne, right? Because I'm not talking about, you know, hundred miles wide or 200 kilometers wide. No, no I'm talking about, you know, probably a field, probably a high rise building.

Ricardo (2m 9s):
So it's not big at all. And you concentrate most of the traffic. And I want now to share with you some perspectives on risk manager, because when we think about risk management in this case, we try to think about, Oh, global trade. We are thinking about the law says, or, or shortage of supply. We're talking about very macro, but now let's talk about the different players on these unique incident. And let's take this for, did that tickle purpose. First one, let's now think that we are part of evergreen. So we are part of the ship company where the ship that owns the ship that was stuck.

Ricardo (2m 51s):
So first let's think about the risks for them. So if we think about the risks for them, they have the risk of losing that ship. If really a radical measurement, they have the risk of delaying their cargo form. And they say today it was a release it, but so let's see, seven days they got maybe penalties. They are maybe raising insurance rates because of course, who provides insurance to this company will revisit, right? This kind of insurance, because you know, it's something that creates, I would say, an increase in probability of problems and also the image, right?

Ricardo (3m 33s):
Because imagine your company on the spot in every single news for a week with your logo there. So there is a damaging the reputation, and this is a little bit more about crisis management on that. So probably the clients will face challenges, right? Thinking how reliable they are. And look, I'm also taking one thing. Nobody knows exactly what happened and what generate the accident. Okay. So I'm not talking about any malicious act. I'm talking just a plain accident here. Okay. Because if we go that road, then it's a completely different scenario. Okay. The second order shipping companies imagine you were an owner of a shipping company, or you work in a shipping company that is just stuck waiting for the canal to be unblocked and you continue your trip, right?

Ricardo (4m 25s):
So you may see delays. You may see increase in liability every single day. It's like a taxi. You don't run, you don't get money. If a ship, not put container oil, serials, whatever inside and move, you are paying fixed costs without revenue. So for them, it's a massive loss too. The third player is the government of Egypt that off the Swiss canal for them, of course, there is one impact that is so evident. It's so clear. It's around $14 million per day. They use it on what I saw on the news, what they said, it's around $15,000 per ship to cross and it's around hundred ships.

Ricardo (5m 7s):
So I'm just making a rough numbers. The second risk for the government of Egypt is reliability, right? Because people will think, Oh God, you know, is it worth to get on that? Or it was just an accident that will not happen again in order to answer that the government already did a massive work in 2015, duplicating a big part of the Suez canal to improve the flow, to improve the speed and to provide a better service and to reduce risk. Because if something happens like that, you'll have this, however, they were not able to duplicate the full canal, they duplicated just one part of the canal.

Ricardo (5m 49s):
And sadly this ship block it, the path that had no other option. So probably the government will face some pressure or will face some business decision on doing that and not a risk for the Egypt. Government is a potential attack or a potential war because today the Swiss can now demonstrate how weak was the situation to protect if something blocks the canal. Okay. If something blocks the canal, like a simple ship, a hundred of Democrats every day, imagine this, you know, in one year. So it's a probability game.

Ricardo (6m 30s):
So imagine if someone terrorist group or something like that, hijack a ship like that, just to stuck it in the canal and block the global trade for a month. So this is a massive implication. This is the same that we saw. For example, with COVID, it's an impact that it's impressive. Isn't okay. I'm precedent. And this is unprecedented in the history of the canal. I'm saying on these way, in the peaceful accident, that block at pretty much everything, the Otter player want to discuss is a player like Germany that relies heavily on global trade. So most of the factories and industries, they rely on just in time supply.

Ricardo (7m 13s):
So <inaudible>, they may have to shut down things. They may have to slow down their production to cope with this delay. So this is the, I would say the upside of global supply and last but not least, it's you, it's you and your project. So you may say Ricardo, okay, all you said, it's very nice, but you know, I'm not able to put pressure on the government of Egypt. I'm not a big player to renegotiate with a massive shipping company. You know, I'm just doing a project. And to have that containers, they carry an okay and critical equipment to help me to finish my project. So how can I manage this kind of situation?

Ricardo (7m 56s):
The first thing I would suggest to you is that every single decision you make comes with a cost. So every time you decide to import things, of course you evaluate the cost. You evaluate the current exchange, work volume rate taxes, but there are auto risks you need to understand. And these is the trade off of, okay, let's build or let's buy or let's do. And it always come with this kind of challenge. The second thing is that you need to identify in your project. We charged the critical points that you cannot move because maybe you need that equipment next week and you will not get it. But you know that you can flip that task of that equipment and delayed to use it two months from now.

Ricardo (8m 42s):
And then you can do a different thing. You can shift your workforce and your team to do a different thing while you wait. And these ease and risk response, a very intelligent risk response that you may take. So what I wanted to show you today, it's this dimension of risk management. You know, this managing of this uncertainty, that is a critical thinking for every single of us. So every single off displayers I put, as an example, here, they act to help us to understand how we can play and which kind of power do we have to shift the conditions in order to improve the results of our forte. So think about that, then this is why it's so wonderful to understand enterprise risk management.

Ricardo (9m 27s):
So I hope you enjoy this podcast. Have a safe week ahead and see you now next week with another five minutes podcast.

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