When the Supply Chain Broke

On March 23, 2021, the Ever Given — one of the world's largest container ships — ran aground in the Suez Canal. It was wedged diagonally, blocking all traffic for six days. 369 ships waited. $9 billion of trade per day was disrupted. The incident was almost comically visual — a single ship blocking global commerce — but it illustrated exactly how fragile a system it was. 12% of global trade passes through the Suez Canal. There is no good alternative route.

When COVID hit, carmakers cancelled their chip orders expecting demand to collapse. Chip factories reallocated capacity to consumer electronics — laptops, gaming consoles, phones — as people bought them in lockdown. When car demand rebounded faster than expected, there were no chips. Ford and GM were parking finished cars in fields waiting for $5 chips. General Motors lost $2 billion in profit in a single quarter. A single tiny component — semiconductor chips — had become the chokepoint for the entire global economy.

As shortages hit, companies panicked and ordered two or three times what they needed — to make sure they got enough. Suppliers saw this demand and ordered more raw materials. Raw material producers ramped up. By the time the extra orders arrived 6–12 months later, the original shortage had resolved — but now there was a glut. Prices collapsed. This is the bullwhip effect: small demand changes at the consumer end create wild swings further up the supply chain. Understanding it is fundamental to understanding why commodity and goods prices are so volatile.