Contents

Suez Canal blockage....................................................................................................................................1

Macro and micro economic perspectives....................................................................................................1
Company affected by the blockage.............................................................................................................2
Routes and destination of Caterpillar..........................................................................................................3
Financial status of caterpillar.......................................................................................................................4
Crises of blockage........................................................................................................................................6
Alternative solutions...................................................................................................................................7
References...................................................................................................................................................8

Suez Canal blockage

It was in march when the most crucial supply route of world suffered blockade as the largest

ship of Japan, Ever Given almost 2.20 lac ton was stuck for several days since march 23,

hindering the passage of other cargo ships. The loss occurred in billion US dollars, requiring

compensation of loss from ship owner of Japan.

Since beginning, Swiss canal has been the busiest supply chain route of most of the businesses

in the world. The trade system of global business hugely depends on the route for its significance

of location connecting many countries and save huge cost of transportation. But the canal has

suffered the blockades for many times that ultimately has halted trade activities. Roughly, 12%

of the global trade occurs through Suez Canal with tons of barrels of oil importing to different

countries each day, so the blockage brought great depression for the industrial revenue. The

aftermaths of blockage did not impact on the global trade but the retail market, distribution,

manufacturing and supermarkets were also disturbed till the blockage. However, the recent
blockage caused by Ever Given threw a huge loss of around 54 USD billions to the total trade

happening through this route (digitalcommerce360,2022).

The per day revenue generated by the ships is 14 to 15 billion USD per day so this blockage of 6

days caused huge loss to the global trade and big companies had to borne huge cost to overcome

the loss in revenue.

Macro and micro economic perspectives

The blockage caused decrease in supply of crude oil, essential commodities that caused

substantive increase in the demand. Manufacturing companies of cars had to stop the process due

to unavailability of rare earth elements and electric parts of cars. Since the delay of raw material

has stopped manufacturing process of cars so the overall supply of cars was affected. Meanwhile,

there was increasing demand of commodities and other essential items that decreased the prices

of products as well (Gulf news, 2022).

Other economic factors include high cost of trade, as the products become costly after the

release of blockage from the route. Companies required more government subsidies to

compensate their losses and resume the supply chain.

Furthermore, economy suffered ripple effect, prices of commodities increased and inflation was

deriving high in the global markets. While the skyrocketing rates of transportation and shipping

further added to the cost of inflation and overall economy was halted in the already vulnerable

environment of Covid.

Company affected by the blockage

Caterpillar
Caterpillar is the world’s biggest manifesting company of machinery and has complex supply

chain management system that requires to import material and export the finished products at the

global level. Company is highly susceptible to the macroeconomic factors that disturb its supply

chain management and make the process more complex and lengthier. In the times of poor

supply, demand of core products of Caterpillar goes up and company is unable to cater the high

demand due to shortage pf production (Rao et al.,2000). The supply chain management goals of

company are focused on the implementation of digital technology that would reduce the

inventory cost to the half of cost. Use of censors is one of the core goals of company to track the

inventory in-transit and in the unfortunate incidents of poor macro and microeconomic situation.

Use of technology in the supply chain, enables the company to recognize the bottlenecks and

prevent from wastage of inventory and high cost embedded to the supply chain.

Routes and destination of Caterpillar

Caterpillar transports its products to China, USA, Asia and Africa, company has major locations

and manufacturing units in Europe. It transports its business through air-cargo, ships and land

routes. It is highest revenue generating company among machinery manufacturers and uses Suez

Canal, the biggest trading route, to reach its products at destination (Forbes,2015).

Supply chain management of Caterpillar

Supply chain management of caterpillar is composed of number of tools that are following:

 Vendor inventory management system

 Inventory replenishment process

 Strategic inventory management system

 Forecasting and collaboration

  Just in time inventory management system

 Utilization of digital tools

The following figure shows the supply chain management system of caterpillar:

Financial status of caterpillar

 2.56 USD dollar of revenue is generated by Caterpillar in the financial year 2021.

 Profit if 505 million USD was recorded by the company in the financial year 2021.

 Although the manufacturing cost of Caterpillar is high but it is of settled by the high and

premium prices charged by the company from consumers.

 Caterpillar has good market share of around 15% that consists of heavy equipment and

machinery in the world as compared to its competitors.

 Despite huge restrictions and disruptions during Covid-19, company is able to make

good revenue and selling its products at high prices.

Crises of blockage
Caterpillar company is the world’s largest machinery producing company in the world is hugely

affected by the blockage, the company suffered delays in the manufacturing process since many

days and its manufacturing process was halted due to unavailability of machinery and its parts.

Caterpillar faced serious crises in its manufacturing process, supply chain as pushed backwards

as the cargo ships stranded in the Suez Canal were unable to reach their destination and supply

the material to the company for the production of goods (Businessinsider,2022).

Many times, company had to take costly decision of airlifting the products to reach at their final

destination but the costly process only added more troubles to the company. According to the

reports, company has to face a lag of almost 7 weeks that stopped transportation from Asia to

Europe of its products and caused huge loss to the financial status and stakeholders. Instead of

routing from Africa and changing its transportation method, company decided to use air travel

for the speedy transport of goods so that huge loss can be prevented and products can reach on

time. Before the blockage, company was already facing delivery crises and was unable to coup

with the high demand of consumers and investors all over the world (Businessinsider,2022).

Containers were flooded with the important raw material and machinery and it was impossible

for the caterpillar to turn back that material from its destined route that would otherwise have

created huge loss for the business. The disruption of supply chain flow hindered almost all the

activities of its manufacturing site and the business was unable to adapt normalcy.

In addition to the crises of blockage, Caterpillar’s loss was compounded amid covid-19. The

recurrent pandemic and never-ending stoppage of transport services across the boundaries of

countries are the major reasons that created complexity in the supply chain management of

Caterpillar.
There are number of solutions that Caterpillar came up to solve the blockage issue but its

preference was to choose air cargo services, though it was costly but the speedy recovery of

products stranded was very important to balance the huge demand coming during the supply

shortage. Though after 7 weeks, company was able to resume its supply chain and transported

the products to Europe and other destinations that were required.

Alternative solutions

Unlike Caterpillar, other companies preferred route of Africa that was les costly option than

what Caterpillar decided. While, company’s financial position is very strong and shortage of

supply was frightening the revenue and could have become riskier so the decision through air

cargo was better for Caterpillar amid complexity.

However, to prevent huge cost of air services, alternative solution was to prefer route of Africa

like other companies did to save huge cost and avoid more complexities. Transporting products

through air cargo would have become more complex because airlifting was required to unload

and reload the products so it is overall costly and hectic process for Caterpillar. Therefore,

changing route is the good alternative.

 References
1. Ramos, K. G., Rocha, I. C. N., Cedeño, T. D. D., dos Santos Costa, A. C., Ahmad, S.,

Essar, M. Y., & Tsagkaris, C. (2021). Suez Canal blockage and its global impact on

healthcare amidst the COVID-19 pandemic. International maritime health, 72(2), 145-

146.

2. Rao, U., Scheller-Wolf, A., & Tayur, S. (2000). Development of a rapid-response supply

chain at Caterpillar. Operations Research, 48(2), 189-204.

3. [5] “Caterpillar’s Internet-Connected Sensors Steady Profit In Downturn”. 2017. Digital

Commerce 360. https://www.digitalcommerce360.com/2016/07/26/caterpillars-internet-
connected-supply-chain-steadies-profits/.

4. [6] Reiss, Robert. 2015. “Supply Chain Leaders Share How Digital is Transforming
Operations”. Forbes.com. https://www.forbes.com/sites/robertreiss/2015/12/07/supply-
chain-leaders-share-how-digital-is-transforming-operations/#148952294b04.

5. Companies from IKEA to Caterpillar hit by Suez blockage in growing trade crisis.

(2022). Retrieved 2 February 2022, from https://gulfnews.com/business/companies-from-

ikea-to-caterpillar-hit-by-suez-blockage-in-growing-trade-crisis-1.1616836004633

6. Machinery manufacturer Caterpillar is expecting shipment delays due to the Suez Canal

gridlock. (2022). Retrieved 2 February 2022, from

https://www.businessinsider.com/caterpillar-expects-shipment-delays-due-to-suez-canal-

blockage-2021-3