Logistics experts warn of far-reaching disruptions and product delays in the US
The problems impacting global trade, including the ongoing Houthi attacks in the Red Sea and an unprecedented drought in the Panama Canal, are more severe than anticipated, according to logistics experts. These disruptions are set to have far-reaching consequences, causing further delays in product availability for consumers in the US during the upcoming spring and summer shopping seasons. As companies strive to offset losses, these challenges may also lead to issues with shrinkflation.
Diego Pantjoa-Navajas, Vice President of Amazon Web Services Supply Chain, explained that the situations in both the Suez Canal and the Panama Canal are greatly hindering supply chains, affecting trade between Asia and Europe, as well as between North America and Asia.
Attacks in the Red Sea disrupt trade in the Suez Canal
The Suez Canal, which serves as the shortest shipping route between Europe and Asia, is facing significant disruptions due to ongoing attacks by Iran-backed Houthi militants on cargo ships. These attacks, aimed at disrupting regional trade and hindering Israel’s war against Hamas, have created chokepoints in the canal. It is estimated that approximately 15% of global shipping traffic relies on this vital waterway.
Unprecedented drought impacts the Panama Canal
Simultaneously, the Panama Canal is grappling with an unprecedented drought, which is affecting water tables and the passage of ships. With over 14,000 vessels transiting the canal in 2023, this drought is causing significant challenges. Unfortunately, there is currently no solution available to address these issues.
Consequences Already Rippling Through Global Trade Networks
According to Pantjoa-Navajas, the consequences of these dual challenges are already being felt in global trade networks, resulting in slower arrival of goods. As a result, scarcity of goods and higher costs for items ranging from electronics to furniture to oil are expected. In fact, in December, Inter Ikea Group warned of delays and potential availability constraints for certain Ikea products due to the situation in the Suez Canal.
Ann Marie Jonkman, Senior Director of Global Industry Strategies at supply chain management company Blue Yonder, anticipates that the impact will become more evident in the coming weeks. She predicts that US retailers will start announcing shipment delays for consumer goods, leading to an increase in “shrinkflation,” where companies reduce unit sizes or weights to maximize profits per package. These challenges also extend to raw materials, potentially delaying the manufacturing of finished goods expected to hit stores in the next few months.
Embracing Technology and Boosting Supply Chain Management Processes
Pantjoa-Navajas emphasizes the need for embracing advanced technology and enhancing supply chain management processes to drive growth and reduce risk. As a supply chain technologist, he believes that a technological shift towards digital supply chains will increase agility in an uncertain world. By adopting digital solutions, businesses can better respond to environmental, economic, and geopolitical challenges.
As the challenges in the Red Sea and the Panama Canal persist, the global trade industry must adapt and leverage technology to overcome these obstacles.
