Case study: What the Suez canal debacle can teach the business world about using alt data to analyze economic shifts in real-time
Manufacturing, retail, and the petrochemical industry leveraged geospatial data to reroute vessel journeys, satellite and ship freight data to create real-time business opportunities, and transactional data to mitigate losses
In this article we will discuss:
- How one of the world’s most important canals got jammed
- What are the major financial implications
- Real-time alt data business insights to mitigate crisis losses
How one of the world’s most important canals got jammed
The Ever Given, a Taiwanese mega-container ship is a 400-meter long vessel, making it one of the world’s largest cargo ships. Weighing in at 200,000 tons, the carrier has a capacity for transporting up to 20,000 containers to Europe, from Southeast Asia via the Suez Canal (Est. 1869). This helps ‘freighters’, as they are known in the shipping industry to save both time and petrol by cutting directly through the Middle East, instead of adding an extra 7-days to their journey when having to circle The Cape of Good Hope.
On Tuesday morning, March the 23rd, at approximately 7:40 am, the Ever Given, which is roughly the size of the Empire State building, ran into trouble, including:
- Winds blowing at 40-knot speeds
- A sandstorm causing poor visibility
- An ensuing blackout
Leading to the ship getting lodged diagonally across the canal’s vital trade passage, and effectively bringing all cargo crossings to a standstill, until canal operators can figure out how to free this beast of steel.
What are the major financial implications
- 12% of global trade (annually)
- 1 million barrels of oil (daily) or one-tenth of the world’s seaborne oil trade (annually)
- 8% of Liquefied Natural Gas (LNG – annually)
- ~$15 million daily revenue or 2% of Egypt’s GDP
- ~$ 400 million of cargo passing through an hour
This is one of the most expensive ‘traffic jams’ in memorable history leaving some 450 ships ‘delayed in-transit’, costing global trade an approximate $10 billion a week according to Allianz Insurance.
The main cause for these losses (and the sectors most affected) include:
- Global Shipping – A 47% increase in shipping costs between Asia and the Middle East (going around the ‘Horn of Africa’ can add a $450,000 premium to cargo voyages)
- Import/export – Ordering additional goods via air freight – triple the cost of ship cargo
- Petrogas– The cost of renting oil/natural gas tankers increasing by ~25%
- Manufacturing/Retail – The disruption of supply chains and production [everything from syrups (food industry), vehicle parts (car industry), forklifts (construction), and Amazon goods (eCommerce), are being held in limbo, according to an interview with Steve Parks, the director of Seaport Freight Services].
Real-time alt data business insights to mitigate crisis losses
Many companies affected by the supply chain disruptions were able to use alternative data sets to reduce the negative effects on their business. Those companies who did not make use of real-time data to maneuver the Suez Canal debacle will likely want to use this as a learning experience for the future. Here are some of the ways in which alternative data was put to work during this crisis:
Geospatial data is enabling vessels to reroute journeys
Geospatial data pertains to objects or occurrences that have geographic coordinates here on earth. These may include:
- Weather information
- Pedestrian movement
- The spread of a pandemic
- Waterway/road movement, congestion, and blockage data
The latter was used by companies transporting goods via the Suez Canal enabling them to reroute their cargo ships based on a live feed of geospatial data. According to a Wood Mackenzie source cited by The Wall Street Journal (WSJ), one Liquefied Natural Gas (LNG) exporter from the United States was able to leverage geospatial ship-tracking data in order to entirely avoid the Egyptian crossing. That corporate entity, currently wishing to remain anonymous, redrew their ship’s nautical journey while it was still in the North Atlantic, sending it around The Horn of Africa, saving them both time, and money while maintaining supply route consistency.
Satellite and ship freight data is shedding light on new business opportunities
From a different standpoint, ‘Sumed’, or ‘Suez-Mediterranean’, a pipeline used for transporting oil from the Persian Gulf region to the Mediterranean, relied on alternative data to turn the blockage into a business opportunity. Collecting satellite, and ship freight data, as well as information regarding the cost of rerouting oil ships around Africa, enabling them to proposition supertankers with an alternative – using the pipeline to pump oil. And though this is a more costly option, it would help companies avoid delayed deliveries, as well as defaulting on supply contracts.
Data indicative of oil market movement
Having 1/10 of the world’s sea-transported oil flow through its waters, oil traders, manufacturers, and financiers kept their eyes peeled on gas-crucial datasets. The Brent International Oil Benchmark used to set the price of two-thirds of the world’s internationally traded crude oil supplies, for example, was down a mere 4%. This was due in large part to crude inventory buildup during the pandemic. Interested parties collected alternative data points:
- Satellite imagery of US oil trucks indicative of high/low crude inventories which affect prices as well as activity of oil refineries across the Middle East
- Gas emission, toll road, and electricity data to determine usage levels in target markets (such as Europe and the US)
- Sentiment regarding oil commodities on social networks such as Reddit, and Twitter
- Search term volume including key phrases such as ‘Suez canal oil price fluctuations’
Supply chain, and raw materials production data
The Suez Canal is also a key artery for the transfer of petro-chemicals crucial to the production process. This includes lubricants that have a petroleum-based manufacturing process (explaining the etymology of ‘Petroleum Jelly’), and Naphta, which is a liquid hydrocarbon used in many modern production plants across East Asia. Seeing as Naphta is a crucial component in the production of plastics from phone cases to car body parts and that roughly 400,000 barrels pass through Suez daily, manufacturers were/are keeping a close eye on pertinent data:
- Transactional data – Publicly recorded transactions between suppliers, delivery companies, manufacturers and retailers are serving many in the supply chain ecosystem. For example, retailers who are seeing a decrease in the volume of raw material transactions may benefit from hoarding their supply until demand outstrips supply.
- Pricing data – Keeping track of wholesale, and retail prices of both raw materials, and ready-to-sell goods serves as a good indication of whether supply and demand are balanced or heading towards an imbalance. Gaining access to this information helps manufacturers pace production, and delivery times for example, and can help avoid wasting power, and human resources unnecessarily.
- Satellite data – Enables corporate entities to detect road, air, and waterway disruptions so that they can plan production in accordance, and/or reroute delivery vehicles as needed.
- News stories/ social media – Sometimes news stories break quicker than corporate entities communicate. Many companies are monitoring news outlets, social media networks, and search engines for relevant information, in different languages, based on operations, and interests in different geographies. For example, a company with manufacturing plants in China, shipping routes through Egypt, and retail outlets in Britain will want to collect, and cross-reference data from all three GEOs in real-time for a more holistic picture.
The bottom line
Having access to a live feed of alternative data during the Suez Canal shipping crisis was very beneficial for those companies who had the foresight to streamline their data collection efforts in advance. This enabled corporations to avert tragedy, minimize damages, and even created some unique monetization opportunities. Businesses that did not have that foresight were hit hardest.
What side of the fence will your company be on when the next unforeseen global event unravels?