The butterfly effect on global trade
Auto, Aviation & Transportation
Global trading has come a long way from the original silk road, yet one could argue that the hyper connectivity of today, with instant communications and real time tracking, is also its biggest vulnerability. Global disasters – both natural and manmade, conflict and even human error spark ramifications that travel to every home in every country, no matter how seemingly isolated.
This butterfly effect has been explored extensively in meteorology and chaos theory. The belief that one miniscule action can, along a linear time line, cause a much larger reaction. It was English mathematician Alan Turing who said in 1950: “The displacement of a single electron by a billionth of a centimetre at one moment might make the difference between a man being killed by an avalanche a year later, or escaping.”
The rising cost of living that has been borne by countries all over the world have all been driven by events affecting the movement of goods placed on dolav pallets and stuck in containers crisscrossing the earth. From complex conflicts such as the Russian invasion of Ukraine, to completely avoidable disasters such as the Suez Canal blockage, often the knock on effect for the average homeowner was the panic buying of petrol with long queues at the pumps, not because there was a shortage of petrol, but because there was a fear of a shortage of petrol.
The knock on effect of the Suez Canal blockage
The Suez Canal incident is such a perfect example of blips in the supply chain, that we will take this opportunity to explore it in a little more detail here.
The incident itself was caused by a perfect storm of a number of factors. As the container ship, the Ever Given, was navigating the channel, it hit a sand storm which significantly reduced visibility and affected the hydrodynamic interactions between the vessel and the canal banks. A number of erroneous decision making while trying to rectify a 400-metre-long carrying the weight of 20,000 containers in high winds with minimal visibility meant that this strategic shipping route was blocked for six days.
As a result, over 400 ships were delayed, stacking up at both ends of the canal, disrupting what is usually 12% of global trade volume flowing through every single day.
For the average family going about their day to day business the effects soon made themselves felt. Products and parcels could not be delivered. Petrol reserves were running low, causing a steep incline in prices. Insurance companies were fighting claims on every side – which has led to steep increases in domestic insurance prices.
In short, Ever Given blocked an estimate $9.6 billion of trade, every single day.
The compounding effect of other global events
The Suez Canal incident lasted just six days, and the reverberations were felt for months to come. During the same time period there have been many more events that add to the overall complexities.
The Covid 19 pandemic was probably one of the most significant in terms of shifting the patterns of behavior and consumption, and completely changing the trajectory of trade. Despite being stuck at home, demand for goods grew exponentially, causing supply issues and bottlenecks.
Global conflicts such as the Russia-Ukraine war and the unrest in Yemeni continue to have a profound impact. Sanctions against Russia have disrupted shipping routes such as the Black Sea corridor. The Bab el-Mandeb Strait off Yemeni is a critical route for oil and gas shipments. The threat of attacks on container ships brings higher insurance premiums, an increase in the prevalence of security measures, potential re-routes to longer, more expensive routes, expensive delays to shipping schedules, all f which have a cascading effect on wider economic systems.
With fast communications, the impact of these events can be felt all around the world almost immediately. Yet the impact reverberates for weeks, months and sometimes years later.
