On average, more than 50 ships pass through the Suez Canal each day, carrying 12% of global trade. Some twenty-thousand ships pass through the canal each year. There have been 75 incidents with ships passing through the canal in the last decade. The historical data indicates that there is less than a 0.04% chance that a ship will have an issue as it travels through the Suez Canal. Also, past incidents had never caused completely blocked the canal or caused as much disruption as the Ever Given, which was stuck from March 23rd to March 29th.
The Suez Canal is an example of a bottleneck. It is 120 miles long, but the typical width is 200-300 feet. For most of its length, ships cannot pass one another. This is an incident a risk manager could have foreseen as a real possibility. Risk management involves more than simply extrapolating from the past. I’m a fan of statistics and using historical data, but true risk management encompasses more than just using statistics, it also tries to understand the context of a situation and what could potentially go wrong. Mathematics and statistics are just tools to help inform decisions.
Also, a key tenet of my approach risk management is that consequence is more important the likelihood of the occurrence of a hazard. The Ever Given provides a perfect illustration of this point. However, due to our innate need to be right, we ignore consequence and focus on likelihood instead. The recent events in the Suez Canal were unlikely to occur. In a 10-year span, the chance that a ship passing through the Suez Canal will experience an incident is less than 1 in 2,500. Assessing the probability that a ship will have an Ever Given was difficult to quantify before its occurrence but it should have been recognized as a possibility. However, it is the potential consequence that should have been a concern. To be fair, the state-owned company that runs the canal recognizes that it is a bottleneck and in the last few years spent $8 billion on widening the waterway. Clearly, more work remains to be done.
This is one of those rare instances where a fluid bottleneck became a logistics bottleneck. How might we mitigate the consequences? Perhaps having more tugboats and equipment up and down the Canal? We certainly could quantify the benefit now.
Try to remove the bottleneck. Egypt can try to continue to widen, or companies that need to ship goods should have contingency plans in case of a blockage as well.
More tugboats is a good idea.
Great post. I wonder if anyone has done the math to determine how unlikely this event was. Is this a four sigma, five, six sigma event, in terms of a lost revenue/additional cost due to a canal stoppage? Part of the problem of this calculation is that the historical data is not applicable. Ships are much, much larger then ten or twenty years ago. The large surface area made the ship uncontrollable when a large gust of wind hit. Therefore, to model it properly, we would need a physics-based model that pulls in atmospheric data to model how large ships respond to inclement weather. Maybe then the math would show that it is not as unlikely as the historical data would suggest.
Good insight Eric.
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