Drought Causing Issues At The Panama Canal
Global trade is facing major disruptions as two key trade routes, the Suez Canal and the Panama Canal, are being impacted by external factors.
The attacks by Iran-backed Houthi militants on cargo ships in the Red Sea and the unprecedented drought in the Panama Canal are causing delays and scarcity of goods, leading to higher costs for consumers. These challenges are not temporary and could have long-term consequences for global trade.
Diego Pantjoa-Navajas, vice president of Amazon Web Services Supply Chain, believes that these two situations are "dramatically impacting supply chains," causing hindrances in trade between Asia and Europe and between North America and Asia. This is due to the fact that both canals serve as vital shipping routes for goods to be transported between these regions. The Suez Canal, in particular, is estimated to be responsible for about 15% of world shipping traffic, making it a critical link in global trade networks.
The attacks by Houthi militants pose a major threat to the Suez Canal, as its closure would have a significant impact on global trade. The canal serves as the shortest route between Europe and Asia, and any disruptions can lead to delays and scarcity of goods. These attacks are seen as an attempt to disrupt trade in the region and potentially halt Israel's war against Hamas.
At the same time, the Panama Canal is facing difficulties with water levels due to an unprecedented drought. This is causing issues for ships that are unable to pass through the canal, leading to further delays in global trade. According to Pantjoa-Navajas, both of these situations require a solution that does not currently exist, making the future uncertain for global trade.
The consequences of these disruptions are already rippling through global trade networks, and the slower arrival of goods is already being observed. This means that there will likely be a scarcity of goods and higher costs for customers in a variety of industries, from electronics to furniture to oil. In December, Inter Ikea Group warned that there would be delays and potential availability constraints for 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, predicts that the impact of these disruptions will become more prevalent in the coming weeks.
She notes that "product delays will become more prevalent, leading U.S. retailers to begin announcing shipment delays for consumer goods in the coming weeks." This could potentially lead to more shrinkflation, as companies try to offset losses by reducing the size or weight of their products while keeping prices the same.
The effects of these disruptions will not only be felt by finished goods but also by raw materials. This could ultimately delay the manufacturing of finished goods, further exacerbating the shortage of goods in the market. The longer these situations persist, the greater the impact will be on global trade and the availability of goods for consumers.
In light of these challenges, Pantjoa-Navajas believes that there will be a technological shift in supply chain management. He argues that businesses should embrace advanced technology and boost their supply chain processes to increase agility and reduce risk in an uncertain world. This could lead to the emergence and adoption of digital supply chains, which will help businesses respond to environmental, economic, or geopolitical challenges.