Until it starts disrupting the American economy.
If you’ve been paying attention to the story, you’ve probably heard this aspect mentioned. This boat, this one gigantic, Empire-State-Building-sized boat, might potentially cause economic damage to the United States. This may seem inscrutable to a layperson. The boat will do this … how, exactly?
To answer this question, I reached out to several experts on global logistics. The goal wasn’t to understand the intricacies of the international trade system but simply to answer that direct question. What’s the butterfly-flapping-its-wings process by which that stuck boat ripples onto our shores?
The short and obvious answer is that, unlike that apocryphal butterfly, there’s a direct and obvious connection between that boat and American consumers.
The ship, the Ever Given, is bound for Rotterdam where it will unload the cargo it picked up in Malaysia. It’s a lot of cargo; the Ever Given can transport up to 20,000 standard shipping containers. To give some perspective, if each container was carrying unwrapped Rubik’s Cubes, one container would hold 218,000 cubes and the Ever Given could transport about 4.4 billion of the toys.
It’s not clear what’s on the vessel now, though presumably not that. It could be clothes bound for distribution to stores in Europe. It could be manufacturing components destined for the East Coast of the United States. The short and simple descriptor is that it’s something that fits into the global economy somewhere — and therefore it’s a problem.
“Think of this whole thing as a domino,” industry analyst Cathy Morrow Roberson explained in a call with me on Thursday. “If one is delayed, the next leg of the delivery is going to be delayed, the next leg and so on and so forth.”
(The Ever Given could carry about 106 billion dominoes.)
Critically, some of those domino chains lead to other, more complicated chains. For example, the Ever Given could be carrying components that are needed to produce automobiles in Ohio. If they don’t arrive, it’s a bigger problem than if a store is out of stock of Arsenal jerseys.
“If the materials don’t get to the manufacturer in time,” Roberson said, “it’s going to create a slowdown or a disruption in manufacturing, which in turn will impact the final product being completed on time.”
It could also affect the employees, as I was told by Lisa Anderson, an expert in manufacturing and supply chains.
“A manufacturer can’t produce” if it’s waiting on essential material, Anderson said. “Now we have all these people who are at the factory not doing anything.”
Not really, she hastily added — at least, not yet. But that’s the threat, that the domino which doesn’t fall in Rotterdam means one doesn’t fall in Lordstown.
Manufacturers aren’t going to sit around and wait for the material, though. They’re going to figure out how to either get what’s being delayed or get product from somewhere else, each of which will probably add cost. Sure, you can divert your cargo to another port, unload it, put it on airplanes and ship it off, but the reason that cargo is shipped around the world on massive shipping containers is because it is far, far, far, far, far cheaper than flying it.
“What you need is not in the right place at the right time. And so you end up having to pay penalties, you have to expedite or you have unhappy customers,” Anderson explained. “There’s ripple effects across the supply chain that could have a bad impact on the economy.”
There are a few things that amplify the negative effects of the Ever Given running aground.
The first is the obvious: it became disabled in the middle of a critical conduit for material. So not only are its containers not getting to Rotterdam but no containers from any of the ships and none of the oil in the tankers waiting behind it can move forward.
There is another route to Europe, of course, the one that explorers discovered in the 15th century: the ships can go around the southern tip of Africa. The Suez Canal was created specifically because that route is so slow and so comparatively dangerous, but it is still an option. Some shippers are actively considering it, given the uncertainty about how long the Ever Given will be stuck.
Of this option, Roberson was frank: “I guess it’s better than just sitting around waiting to go through the canal, huh?”
Another amplifying factor is that the global shipping industry was already a mess, thanks to the coronavirus pandemic.
Normally, the systems of shipping products around the world operate on a relatively constrained schedule, with manufacturers and retailers ordering things with the expectation that they can be quickly slotted in to fill anticipated gaps. Then the coronavirus emerged and both retail and manufacturing (including in China) ground to a halt. As things were gearing back up, the problem was exacerbated by American consumers who were suddenly spending a lot more goods than on services, as Roberson told me. The system was being strained in multiple ways.
“Just trying to get the stuff over here and distributed as quickly as possible is becoming a problem,” Roberson explained. Even before the Suez was incapacitated, the world economy was “trying to get [containers] to where they’re needed so that they can be filled up and sent to the port and turned around quickly. It’s creating bottlenecks, particularly at the L.A., Long Beach port.”
“Now, we have two areas of the world that are completely backed up in terms of a bunch of containers,” Anderson said. But the problem isn’t just with consumers and manufacturers not getting their goods — it’s also with manufacturers not getting their containers.
“If your containers are backed up waiting somewhere, it means not only are they not getting where they need to go, but they’re not getting unloaded and then the empty containers can’t get back to China or wherever to put more product on,” she explained. “Now we have other parts of the world affected, too, because they don’t have any empty containers.”
All of this complexity overlooks other, simpler problems. When stores — online or real-world — run out of products, those products can’t be sold and some percentage never will be. When manufacturers can’t produce goods, there’s only so much capacity to produce them later. There’s an air pocket in the system and that means a hole in the economy.
Anderson made another important point about the situation. We don’t know how long that boat will be there and how long commerce through the canal will be blocked. So we don’t know how bad the effects of the grounding will be.
In other words, as of writing the Ever Given running aground is not comparable to the disruptions caused by the pandemic. It is, instead, comparable to how the pandemic looked in late March 2020, before we knew how long the problem would last and how bad things would get.