The mechanisms that transform your team’s ideas into products that are manufactured in factories around the world, and shipped to your warehouses and customers aren’t called a supply CHAIN by accident. It all ties together…
The Panama Canal, which feeds shipping lanes from Asia to the East and Gulf Coasts, is fed from fresh water; not salt, and the various sources of fresh water in the area are seeing less renewal rain than usual. The Panama Canal Authority reduced capacity due to an “historic” drought. The lack of water makes for a shallower canal, ships both go slower and carry less weight (have less “draft”, which is the amount a ship is underwater) so that it doesn’t hit the ground. Less weight means fewer containers, which means less product traversing the canal. This is causing some delays (and ambiguity) as ships reconfigure their freight loads prior to entering the canal. More ships are showing up on those satellite photos backed up outside of shipping lanes (The ones we gawked at in 2021 and 2022), BUT as container vessels are prioritized, a very small amount of those ships are carrying products and raw materials (for now). Aside from various news sources screaming ‘Movie’ in a crowded firehouse, this isn’t a catastrophe. It is, however, worth monitoring any shipping lane because these currently smaller delays affect more than just Panama and could worsen over time.
Big picture: A private equity supply chain professional looking to bolster their supply chain or an Executive looking to maximize sales revenue this season sees unpredictability at the canal. Why not reroute through a west coast port? This might make sense. A backed-up Panama Canal likely drives more traffic to West Coast ports, like Long Beach, Oakland, or even Seattle. When that happens, demand for inland transportation like trucking and rail will increase. Will we have shortages like 2021? Probably not, given the inherent (and new) ability of those industries to flex supply. However, we’ll likely see industry GRI’s (Global Rate Increases) as we did this past July and you’ll be paying for a longer inland transportation route. Have you leveraged the economic environment in Asia with your suppliers (such as adjusting currency and commodity rates along with payment terms optimization) to offset potential freight operation cost increases? Do you have supplier diversification and is it geographically restricted from other freight options like the Suez Canal? While some estimate this dynamic in Panama could last 8 more months (next years’ rain season starts in May), it hasn’t improved and there’s inherent uncertainty and the heavy holiday shipping season is upon us.
Athletic coaches call it a “Second Effort”, but we don’t believe the first effort (or evaluation) on your supply chain optimization should ever stop. Managing a supply chain and risk mitigation should be constant and consistent. Give us a call to help set up a time to discuss with your trusted strategic sourcing consultants at Forsyth Advisors.