Red Sea, Panama Canal issues are worse than people realize, expert says

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The problems impacting global trade, notably the Houthi attacks in the Red Sea and the drought in the Panama Canal, are far greater than what many people realize, according to logistics experts. 

The disruptions are poised to be far-reaching and could lead to even more product delays in the U.S. over the next coming months as consumers look to spring and summer shopping, and create even more issues involving shrinkflation as companies fight to offset losses. 

Diego Pantjoa-Navajas, vice president of Amazon Web Services Supply Chain, told FOX Business that the two situations in the Suez Canal and the Panama Canal are “dramatically impacting supply chains,” concurrently, hindering trade between Asia and Europe and between North America and Asia. 

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“These are chokepoints both undergoing external pressure,” Pantjoa-Navajas said.

Trade within the Suez Canal, which connects the Mediterranean Sea to the Red Sea, is being stifled as Iran-backed Houthi militants continue attacking cargo ships.  

Ahmed Gomaa/Xinhua via Getty Images

A cargo ship travels on the Suez Canal in Ismailia Province, Egypt, Jan. 13, 2024. (Ahmed Gomaa/Xinhua via Getty Images / Getty Images)

The attacks are an attempt to disrupt trade in the region and effectively halt Israel’s war against Hamas which began after the latter’s attack against Isael on October 7.

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The Suez Canal is the shortest shipping route between Europe and Asia. It is estimated that about 15% of world shipping traffic transits via the waterway. 

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Simultaneously, the Panama Canal is experiencing “an unprecedented drought impacting water tables and the ability of ships to pass,” according to Pantjoa-Navajas. 

According to McKinsey, there were more than 14,000 vessels transiting the Panama Canal in 2023.

The problem is that “both situations require a solution that currently doesn’t exist,” Pantjoa-Navajas said. 

He noted that the “consequences of this double whammy are already rippling through global trade networks and the slower arrival of goods is already occurring.” 

At the very least, this means there will be a scarcity of goods and higher costs for customers for everything from electronics to appliances to furniture to oil, he said. 

In December, Inter Ikea Group already warned that the situation in the Suez Canal will result in “delays and may cause availability constraints for certain Ikea products.” 

A cargo ship crosses the Suez Cana

A cargo ship crosses the Suez Canal, one of the most critical human-made waterways, in Ismailia, Egypt on Dec. 29, 2023. (Photo by Fareed Kotb/Anadolu via Getty Images / Getty Images)

Ann Marie Jonkman, the senior director of global industry strategies at supply chain management company Blue Yonder, said the impact will start to take shape in the coming weeks.

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“Over the next month, we will likely see a greater impact to North America,” she told FOX Business, adding that “Product delays will become more prevalent, leading U.S. retailers to begin announcing shipment delays for consumer goods in the coming weeks.” 

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Additionally, she is expecting to see “more shrinkflation” – which is when companies reduce the unit size or weight of a product to turn more profits per package – in the coming months. 

TOPSHOT-PANAMA-CANAL-DROUGHT

View of the Miraflores Locks of the Panama Canal, in Panama City on Jan. 10, 2024. The drought affecting the Panama Canal has forced a restriction on the number of ships transiting the waterway, amid the El Niño phenomenon that threatens to worsen th (MARTIN BERNETTI/AFP via Getty Images / Getty Images)

“U.S. consumers have high expectations for in-store availability and delivery times,” Jonkman said. “To keep up with the standards consumers have come to expect, retailers will likely have to address inventory availability issues by reducing packaging size but keeping prices the same to offset losses to their bottom lines.” 

While people are starting to experience shipping delays for finished goods now, raw materials are also impacted, Jonkman said. This could delay manufacturing of the finished goods that are expected to be in store in a few months. 

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The issues will last as long as the Red Sea continues to be attacked and as long as it takes for rain to fall in Panama, according to Pantjoa-Navajas. 

However, as a supply chain technologist and professional, he argued that people should be “embracing advanced technology and boosting supply chain management processes to drive growth and reduce risk.” 

In fact, he believes there will be a technological shift that will lead “to an emergence and adoption of digital supply chains to increase agility in an uncertain world.” This will help businesses respond to environmental, economic or geopolitical challenges.

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