This month our resident advice columnist answers questions about the capacity crunch and what shippers can do to make sure their cargo gets delivered intime for Peak Season.
Dear Ahab, I’ve been having some trouble getting my shipments delivered on-time, and I read a report that it’s due to a “capacity crunch” in the supply chain? What sort of factors can cause a capacity crunch? – Captain Crunch
Dear Captain Crunch: When an interruption this massive happens, it’s natural to look for a single explanation, but the reality is there are many contributing factors. The leading cause for the current capacity crunch are the geopolitical conditions surrounding the Suez Canal, as attacks on commercial vessels by Houthi rebels are forcing carriers to sail around the Cape of Good Hope.
This is not only adding two weeks for every journey each way from Asia to Europe and the U.S. East Coast, but it also forces carriers to add four more vessels for each loop to maintain weekly calling. Carriers are forced to rearrange global capacity from low revenue to high revenue services to ensure adequate tonnage is employed to correct trade lanes.
Another exacerbating factor that is affecting capacity is the potential for a major labor action on the U.S. East and Gulf Coasts. This threat has compelled many shippers to frontload their cargo in an effort to ensure they have their products available for the holiday season. Also, port congestion is not helping the situation as there is a line of vessels waiting to unload and load cargo. This market is very similar to what we saw during COVID.
Dear Ahab, is there any precedent for this kind of Suez Canal interruption? What does it look like when the Canal shuts down for an extended period of time? — Pining for Precedent
Dear Pining for Precedent: While it might seem unprecedented, the Suez Canal was actually shuttered for eight years following the Six Day War, from 1967-1975. What that was a long time ago, the problem is essentially the same, causing long-term rerouting of cargo around the Cape of Good Hope, which slows down delivery and increases costs.
The Suez Canal only reopened after regional tensions began to calm, and it took a while to be resolved. Another recent example of an interruption at the Suez Canal was in 2021, when the Ever Given got stuck and blocked all traffic for almost a week. This “minor” problem stopped an estimated $10 billion in trade from going through the canal and it generated an estimated $2 billion in insurance claims.
Dear Ahab, what can I do to make sure my cargo gets shipped during the current capacity crunch, because I still have nightmares about all those COVID delays? – Waterside and Waiting
Dear Waterside and Waiting: The same strategy you used during COVID applies today. Basically, diversify your shipping strategy, try alternative strategies, get your orders in early, and maintain velocity, which may mean paying a higher rate than you are happy with. You can also work with an established forwarder who has deep industry relationships as they will do everything for you.
Dear Ahab, I’m reading all of these stories about a capacity crunch, and I can’t help but see it as an opportunity. I’m an American, we’re an entrepreneurial people, what’s to stop me from buying a boat and shipping some of these containers myself? — Christopher Cash Grab
Dear Christopher Cash Grab: You are absolutely right! The fortune of American shippers currently rests in the hands of foreign carriers. Some may argue that we may never see balance again until we have a new national carrier. So, go take your entrepreneurial spirit, buy as many vessels as you can, and show the world what America is all about!
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