Covid-19 pandemic’s ‘butterfly effect’ on shipping containers reveals the need to prioritise supply resilience over efficiency

The wide-ranging impact of the pandemic continues to unfold, not least in stranded containers and a disrupted supply chain
When even the smallest changes can cause big effects, we need to pay more practical attention to the resilience and security of critical supplies

David Dodwell

Published: 10:15am, 25 Jan 2021

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Today’s is a story of instability, unpredictability, of “black swans” and serendipity (my favourite word). It is about how small changes can have big effects, and the need to give more thought to resilience over efficiency.

It is about shipping and containers, and how we have, as a result of the global pandemic, found ourselves in a terrible tangle because the world’s containers are in the wrong place. Getting them back in the right place will be costly and take time. Meanwhile, global supply chains have been massively disrupted and freight costs have soared.

The Covid-19 pandemic is surely the ultimate black swan – a low-probability, high-impact event. Except, of course, it should never have been seen as one, because the certainty of pandemics has been acknowledged for decades.

The risk was clear. Most risk managers knew that steps needed to be taken to ensure resilience. But, in the day-to-day tussle between efficiency and profit maximisation on the one hand, and risk mitigation and resilience on the other, it was always clear which motivated us most.

Yet the pandemic is a black swan in that it has had a stunning, powerful and wholly unanticipated social and economic impact on a remarkably wide range of countries and business sectors. There can be few better examples of the “butterfly effect”, first articulated in the 1960s by US meteorologist Ed Lorenz.

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Pared to its minimum, Lorenz’s idea was that small events can have a surprisingly large “non-linear” impact on complex systems. And that the tiniest variation in influences can tremendously change outcomes.

The complex systems he was looking at were weather systems. His talk, titled “Predictability: Does the flap of a butterfly’s wing in Brazil set off a tornado in Texas?” led to him being seen as the father of chaos theory – and few events can compare with the Covid-19 pandemic for the chaos created.

Pandemic aside, Lorenz’s butterfly effect can be seen almost anywhere you look. Think of the tiny, serendipitous differences in the 2016 US election results that enabled Donald Trump to become president – and the similarly serendipitous differences in last November’s election that resulted in his demise.

Think of David Cameron who, as British prime minister, set out to deal with a small but persistent party squabble over European Union membership, but ended with Brexit and the most massive dislocation in British and EU politics in half a century.

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British Prime Minister Boris Johnson signs Brexit trade deal

Turn to the pandemic, and the chaotic impacts are prodigious. First and perhaps foremost is the time and place of the emergence of the virus – in Wuhan, just before Christmas 2019. For impact on the global economy, you could hardly pick a worse place or time for a pandemic to start.

Wuhan is at the heart of China’s manufacturing economy, and its foremost hub for rail, river and road transport. A recent Deloitte report noted that more than 200 of the world’s Fortune 500 companies operate there. When it was locked down, the shock waves across China, and the world’s supply chains, were massive.

The fact that evidence of the pandemic only emerged in the fading weeks of December, as an inattentive Western world was preparing for Christmas, gave the virus two or three crucial weeks in which to embed, and spread unchecked worldwide.

As the pandemic numbers rose, its reach became truly global, and lockdowns were forced on more economies, so the butterfly effect did its work. It knocked down a long line of small dominoes, and then steadily, larger lines of dominoes began to fall.

05:47

Returning to Wuhan one year since the Chinese city became ground zero of the Covid-19 pandemic

As travel bans and work-from-home instructions emptied most major cities, city-centre businesses began to collapse. In due course, so did the restaurants, retail shops and hairdressers that served them. As small electronic component manufacturers in South Korea (for example) were forced to shut down, so supply chains froze, grinding carmakers and large global electronics groups to a halt.

As borders were shut to migrant farm workers, so farmers watched unpicked crops rot in the fields. As iron ore or copper miners were forced by Covid-19 to halt operations, so the factories in China and elsewhere were squeezed by shortages that have pushed up commodity prices worldwide.

As airlines were forced to ground their fleets and sack or furlough their pilots and aircrew, so aircraft and airline workers alike found themselves stuck in the wrong part of the world, hard-pressed to serve even the much-diminished business their airlines retained.

And so, too, with containers. There has always been a problem of unbalanced trade flows between Asia (the principle starting point) and Europe and the United States (home to the most consumers). The Covid-19 pandemic simply injected steroids.

Shipping containers sit next to gantry cranes at the Yangshan Deepwater Port in Shanghai on January 11. Photo: Bloomberg

Early in the pandemic, fully laden containers from Asia became stranded in Europe as lockdowns shut the factories and retail outlets. As lockdowns hit ports and shipping lines cancelled sailings, the problem got progressively worse.

As port turnaround times jumped from a normal 40-odd days to around 100 days, the challenge of getting empty container boxes back to Asia to be refilled became severe. Drewry’s World Container Index showed the cost of a 40-foot container jump from around US$1,800 a year ago, to US$4,800 at the end of December.

Europe routes were the worst affected. The cost of a container from Shanghai to Rotterdam jumped from US$1,800 to US$8,900 in the same period, with crippling effects on exporters.

A different way to mark the Lunar New Year

It is hoped that the closure of China’s factories for the fast-approaching Lunar New Year holiday will bring breathing space for more containers to be brought back from Europe. But who knows what challenges those flaps of Lorenz’s butterfly wings will bring in the coming months.

For sure, the supply chain upheavals of the past pandemic year will have profound, and possibly long-term, effects. Long, complex supply chains will be shortened and simplified. Things that can be done locally will be done locally.

More practical attention will be paid to the resilience and security of critical supplies. It will not just be for a love of nature that we pay more attention to the random flaps of butterflies’ wings.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view

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