Recent environmental and geopolitical issues have created an industry situation that is resulting in the return of pandemic-era problems, namely, rising rates, significant congestion, and reduced equipment availability.
Much of the issues affecting the logistics industry, such as decreasing water levels in the Panama Canal and attacks on container ships trying to travel through the Suez Canal, are having profoundly negative effects on the supply chain. Many experts believe these problems could persist well into the new year, wreaking havoc on every shipper’s best-laid supply chain plans.
For example, continued attacks from Houthi rebels off the coast of Yemen on vessels traversing the Suez Canal have forced most carriers to avoid the area and divert their vessels to sail around the Cape of Good Hope – adding almost two weeks to sailing time and, according to many industry experts, up to two months to final delivery times.
These diverted sailings are causing many goods to be delivered late, creating angst amongst importers who are, once again, looking to import and stockpile more supply, in an effort to ensure that they have goods to sell for the upcoming summer, back-to-school and holiday seasons.
“Based on our recent past, you cannot blame shippers for acting quickly to increase their inventories, just like they did during the pandemic,” said Anthony Fullbrook, president of OEC Group’s Northeast Region. “Shippers are responding to historically difficult situations without any concrete solutions on the horizon and are understandably nervous having just emerged from post pandemic mayhem.”
While the issue with the Suez Canal can, technically, be solved quickly because it is man-made and we have more control over it, the ongoing droughts that have been severely impacting the Panama Canal for much of the past year will take more time and are thus more difficult to solve because it relies on Mother Nature reverting back to normal. One temporary solution that is being looked into to stabilize the situation and potentially add more sailings is to release water from the adjacent Lake Alajuela into the canal. However, the problem has caused a significant amount of damage that could necessitate a major infrastructural solution. However, industry experts believe that any infrastructural solution would take at least six years to complete and the US Army Corps. Of Engineers is currently investigating whether or not any solution is even feasible.
“Now much of the container traffic from Asia to the U.S. East Coast, Europe, and Mediterranean destinations, which were normally routed through both the Suez and Panama Canals, are now be routed around the Cape of Good Hope, which is one of the longest routes possible,” said James Vanderloo, Station Manager of OEC Group’s Milwaukee office. “These delicate and dangerous situations that have emerged at both canals over the last several months do not appear to be ending anytime soon, and we are beginning to see the return of many of the same serious supply chain problems that we saw during the pandemic. This means shippers must heed the same advice given during the pandemic, plan ahead and be prepared to pay much higher rates.”