Contents

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

Macro and microeconomic perspectives.....................................................................................................1
Company affected by the blockage.............................................................................................................2
Routes and destination of Caterpillar..........................................................................................................3
The 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 the 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 shipowner of Japan.

Since the beginning, the Suez canal has been the busiest supply chain route for most of the

businesses in the world. The trading system of a 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 blockades many times that ultimately have halted trade activities.

Roughly, 12% of the global trade occurs through Suez Canal with tons of barrels of oil imported

to different countries each day, so the blockage brought a great depression for the industrial

revenue. The aftermaths of blockage did not impact 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 billion 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 bear the huge cost to

overcome the loss in revenue.

Macro and microeconomic perspectives

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

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

to the 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 for commodities and other essential items that

decreased the prices of products as well (Gulf news, 2022).

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

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

compensate for their losses and resume the supply chain.

Furthermore, the economy suffered a 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 the 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 a complex supply

chain management system that requires importing material and exporting the finished products at

the global level. The company is highly susceptible to the macroeconomic factors that disturb its

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

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

the high demand due to a shortage of production (Rao et al.,2000). The supply chain management

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

the inventory cost to half of the cost. The usesensorssors is one of the core goals of the company

to track the inventory in transit and the unfortunate incidents of poor macro and microeconomic

situations. The use of technology in the supply chain, enables the company to recognize the

bottlenecks and prevent wastage of inventory and high costs embedded in the supply chain.

Routes and destination of Caterpillar

Caterpillar transports its products to China, the 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 the highest revenue-generating company among machinery manufacturers

and uses Suez Canal, the biggest trading route, to reach its products at its destination

(Forbes,2015).

Supply chain management of Caterpillar

Supply chain management of caterpillar is composed of a 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 the caterpillar:

The financial status of caterpillar

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

 Profit of 505 million USD was recorded by the company in the financial year 2021.
 Although the manufacturing cost of Caterpillar is high it is settled by the high and

premium prices charged by the company from consumers.

 Caterpillar has a 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, the company can make good

revenue and sell its products at high prices.

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

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

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

parts.

Caterpillar faced serious crises in its manufacturing process, the supply chain was pushed back

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, the company had to make the costly decision of airlifting the products to reach their

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

the reports, the 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, the company decided to

use air travel for the speedy transport of goods so that huge losses can be prevented and products

can reach on time. Before the blockage, the company was already facing delivery crises and was

unable to cope 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 the caterpillar

couldn't turn back that material from its destined route that would otherwise have created a 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 to 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 several solutions that Caterpillar came up with to solve the blockage issue but its

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

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

Though after 7 weeks, the 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 was a less costly option than what

Caterpillar decided. While the 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 the huge cost of air services, an alternative solution was to prefer the route

of Africa like other companies did to save huge costs 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 the overall costly and hectic process for Caterpillar.

Therefore, changing the route is a 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 were hit by Suez blockage in the 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