Panama Canal

Sustainability key to long-term Panama Canal

Mar 20, 2024 | , ,

With 5% of global maritime trade and 40% of US container traffic using the Atlantic-Pacific shortcut, the Panama Canal is a critical link in global supply chains and the drought-driven disruption which started last year is finally relenting, with the key waterway expected to be operating at full capacity by September.

In the first 10 weeks of the year, nearly five million TEU left the Far East for the USA, an increase of 16% compared to 2023, with lines increasing capacity by 24% to meet demand and with capacity for the East Coast up 15% the Canal’s operational capacity is critical.

The Panama Canal transports ships 26 metres above sea level across the mountains and unlike the Suez Canal is reliant on fresh water, but lack of rain and the El Nino weather phenomenon have contributed to the second driest year in the canal’s 110-year history.

Since last summer the Panama Canal Authority (ACP) has had to introduce water-saving measures, which has meant fewer ships can pass through the canal each day, eventually cutting transits by over a third.

Deputy Administrator Ilya Espino de Marotta was appointed as the Panama Canal’s first Chief Sustainability Officer in January, emphasising their ongoing commitment to sustainability.

Ms De Marotta has said that the rainy season starts in late April to early May and they are hoping to increase transits to 34 by the end of May, returning to the normal 38 transits by September.

The ACP is looking to ensure that the restrictions in place since last summer and the subsequent delays will not be repeated, with projects currently underway to ensure reservoir levels are stabilised for the coming year, including the reuse of water from one lock chamber to another, which is saving the equivalent of six daily crossings.

The authority is also considering building reservoirs, its first major project since it completed the new set of locks in 2016.

Another option is to build desalination plants, but it is costly and requires a huge amount of energy. Even seeding clouds to create more rain isn’t off the table and in the medium term ACP is proposing an additional lake, so water levels can be maintained and add between 11 and 15 passings each day, elevating daily transits to around 50.

The project is reliant on government approval and the existing Panamanian government is not supportive, but in May Panama is holding a general election and the ACP is optimistic that the new administration will ratify the project.

If you have any concerns relating to the Panama Canal or your transpacific trade, we can review your situation and outline your options, including road and rail transhipment, and alternative carriers, ports and routes.

Whatever your challenges, our long-term ocean carrier relationships deliver cost-effective, resilient and reliable ocean solutions. EMAIL Andrew Smith, Chief Commercial Officer to learn more.

India factory

Near-shoring boosted by supply chain disruption

Mar 20, 2024 | , , , ,

The post-COVID environment, geopolitical uncertainty, protectionism, climate-change events and now the Red Sea crisis have all put pressure on global supply chains and as we discovered at TPM, companies are increasingly considering the evolution of their global supply chains to minimise risk and security of supply.

In response to geopolitical risks highlighted by the Israeli-Hamas war, Russia’s war against Ukraine and by China’s threats against Taiwan, supplier diversification may add resilience, while near-shoring brings production closer to the point of supply, to shorten lead and delivery times, which potentially means lower levels of inventory and further reduces carbon emissions.

The trend towards diversification is clearly good news for emerging manufacturing power-houses like India, Vietnam, Turkey, Egypt and Mexico.

Over 5% of the UK’s importers are already trading with India and the number is likely to increase as more companies look to diversify their supply chains. 

There is no doubt that production moving away from China has benefited many countries around Asia, including India, Thailand and Cambodia, but there is still a huge proportion of the global supply chain reliant on China.

And research from the IMF suggests that there is no structural retreat from globalisation and that since the global impacts experienced during the COVID-19 pandemic have subsided international trade as a share of GDP has rebounded strongly, despite the fears of geo-economic fragmentation.

What this may mean is that companies could opt for supply chain diversification and resilience over efficiency, especially when security concerns gain greater weight in commercial considerations.

Many European fashion retailers have already sought to avoid long lead times and increased carrier costs by moving parts of their supply chains out of China and into EMEA countries including Turkey, Egypt and Morocco.

Zara’s parent company, Inditex, announced that a switch to near-shoring had helped them reduce waste by keeping a leaner inventory, boost low-order volumes and get clothes into stores in as little as two weeks, boosting profits by 80%.

As the threat of supply chain disruption persists and as competition grows, diversification and near-shoring could become a standard component in retail supply chains, building resilience and adaptability into operations.

For over 40 years Metro has helped customers open up new export markets and diversify sourcing across Asia and EMEA.

Metro’s integrated transport networks are designed to support JIT manufacturing requirements across Asia and within the EU, sub-Saharan Africa and Turkey and are ideally positioned to support the new sourcing requirements that de-risk supply chain operations.

We see diversification and near-shoring as a simple extension of a client’s sourcing strategy, so that if there is disruption in one area, inherent flexibility means the supply chain will continue to flow. 

Our global partner network, strategic carrier alliances and MVT supply chain platforms are all geared towards supporting the widest spectrum of supply chains. 

If you would like to learn how we can boost your ability to source from alternative global manufacturing regions, EMAIL our Chief Commercial Officer, Andrew Smith, to arrange a consultation and scoping discussion.

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Research uncovers scale of Red Sea disruption

Mar 11, 2024 | , , , , , ,

New research by the British Chambers of Commerce (BCC) has found that over half of importing manufacturers and retailers (53%) have been impacted by the disruption to shipping caused by the Red Sea crisis, with over half of exporters (55%) also experiencing increased costs and delays.

The issues highlighted by responding firms included increased costs of up to 300% for shipping, with transit delays adding up to three to four weeks to delivery times. Knock-on effects include cashflow difficulties and component shortages on production lines.

With a record-high new container ship order-book and constrained consumer demand in many markets, the container shipping sector has had ample spare capacity to respond to the challenge of diverting vessels around the southern top of Africa.

The Red Sea transit to the Suez Canal is the fastest sea route between Asia and Europe, but all the major container shipping lines have diverted vessels to the much longer route around Africa’s Cape of Good Hope, increasing costs and creating delays.

Recent ONS data suggest the ‘Red Sea effect’ has yet to filter through to the UK economy, with inflation holding steady in January. However, the longer the current situation persists the more likely it is that the cost pressures will start to build, with some sectors of the economy more exposed than others.

The UK economy saw a drop in its total goods exports for 2023, and with global demand weak, the BCC want the Government to look at providing support in the March Budget, including the establishment of an Exports Council to hone the UK’s trade strategy and a review of government funding for export support.

Week 12 of the Red Sea crisis
The war in Gaza, which according to the Houthis is the reason for their attacks on commercial shipping, shows no sign of abating and on Monday the Rubymar finally sank, the first total loss in the Houthis campaign.

Vessel schedule reliability data for January 2024 confirmed that global reliability dropped sharply due to the Red Sea impact and only slightly more than half of vessels arrived on time, compared to pre-pandemic normality of 70-80%.

Geopolitical risk
The wars in the Middle East and Ukraine are threatening flows of grain, oil and consumer goods, with climate change disrupting the Panama Canal and growing geopolitical tensions are making international supply chains ever more complex.

The World Economic Forum’s Global Risks Report (GRPS) for 2024 highlights how geopolitical tensions in multiple regions is contributing to an unstable global order, eroding trust and security.

GRPS 2024 results highlight a predominantly negative outlook for the world over the next two years, that is expected to worsen over the next decade, with supply chain disruption ranked 19th of severe global risks in the short term (2 years) and 25th for the long term (10 years).

Over the next two years, attention is likely to be focused on the war in Ukraine, the Israel-Gaza conflict and tensions over Taiwan, with any escalation likely to disrupt global supply chains.

All three areas stand at a geopolitical crossroads, where major powers have vested interests: oil and trade routes in the Middle East, stability and the balance of power in Eastern Europe, and advanced technological supply chains in East Asia.

If you have any questions or concerns about the impact of the Suez situation on your Asia supply chain, or would like to discuss its wider global implications, please EMAIL our Chief Commercial Officer, Andy Smith.

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US importers face inventory replenishment quandary

Mar 8, 2024 | , , ,

Many US companies, including big retailers, were successful over the course of 2023 in clearing out the stockpiles of inventory, that they built up during the pandemic to cope with shipping disruptions and changing buying patterns.

During the pandemic many retailers and manufacturers flipped from a “just-in-time” strategy to a “just-in-case” strategy of hoarding inventory to avoid losing sales.

The broad measure of inventories to sales ratio across US retailers stood at 1.30 for the last three quarters of 2023 and while this is still relatively high by historic levels it does suggest retailers have achieved some stability after the roller-coaster pandemic years.

With most inventories back to pre-pandemic levels, importers are pulling in fresh orders, but high interest rates make it more expensive to carry large inventories and could push some companies back toward a ”just in time” strategy, even as supply risks grow.

US holiday sales were up over 3% and many retailers have reported leaner inventories that reflected restraint rather than a rush to restock, but many now want to quickly adjust to new trends.

However the persistent lack of rainfall in Panama since early last summer has been forcing authorities there to reduce the number of vessel transits on the Panama Canal, a key corridor for trade between Asia and the US East Coast.

The Houthi rebel attacks on commercial shipping, that began last December continue, with container shipping lines diverting away from the Suez Canal, which also feeds routes to the US East Coast, with around 12% of US-bound cargo moving through the Canal.

The diversions past the Cape of Good Hope to avoid Red Sea attacks extend voyages by almost two weeks, and although the reroutings are having an impact on inventories, the situation will become increasingly manageable as schedule reliability recovers.

These disruptions are already reshaping inbound US freight flows, and the domestic supply chains that move goods from ports to factories and retail markets.

The National Retail Federation forecasts that US imports in February will increase 20.4% over February 2023, with March expected to grow over 5% and April up 3%.

Cargo volumes surged into West Coast ports during the final months of 2023, posting double-digit year on year gains as shipments into East and Gulf Coast gateways sagged.

West Coast ports in October handled almost 34% of worldwide container trade into the US up 3% on 2022.

That share could accelerate in 2024. The head of the union representing dockworkers at East Coast and Gulf Coast ports has warned members to prepare for a possible strike unless a new labor agreement can be reached to replace the current contract which expires in September.

If you have any questions or concerns about the issues raised in this article, we can review your situation and explain your options, including alternative carriers, ports and routes.

To discover how we can support your transpacific or transatlantic trade, or to learn more about our ocean solutions, please EMAIL Metro’s Chief Commercial Officer, Andy Smith.

Category: Supply Chain

Logistics | Supply Chain

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