In the general course of business, and port strikes aside, navigating supply networks, especially international supply networks, will continue to be challenging. Lisa Anderson of the LMA Consulting Group, which advises business on supply chain, said a major challenge shippers face today is the number of disrupting factors occurring at the same time. Any one factor might not touch on or disrupt a particular supply chain for a given industry, but the number of factors occurring together puts pressure on the entire logistics environment and makes planning all the more problematic.
“Supply chain is rife with disruptions, and it’s not going to change any time soon,” Anderson said. “Too much volatility out there, uncertainty and ambiguity. That makes more and more of these disruptions arise. Recently, there was a drought in the Panama Canal, and that caused the capacity to be reduced by about 50%.”
The recent strike at East and Gulf Coast ports underscored the fact that shippers in the United States have to carefully consider how they approach international logistics in terms of how they move cargo and what expertise they need to keep products moving regularly and at a reasonable cost.
The recent suspension of the strike by the International Longshoremen’s Association union (ILA) may have been a relief, but ILU and the United States Maritime Alliance, or USMX, remain in negotiation for a final agreement that has to settle a key, or perhaps the key, issue in contention: automation.
Both sides have real stakes in the issue, with the ILA desiring to quash automation on the docks where its members work and USMX wanting to add more machines to cut operational costs. The deadline set is January 15, a notable point on the calendar as it comes when retailers are restocking for spring; when Chinese New Year, with its factory shutdowns, is approaching; and when shipping contracts are coming up for renewal. These are all factors that will figure into the strategies that the ILA and USMX will develop as the engage in their high stakes negotiations.
Retailers concerned about a mid-January strike may start bringing products in early, as they did for the holidays, while facing an October 1 initial strike deadline. The combination of circumstances drove up the spot rates carriers charge for containers not covered by contracts to several times contact rates earlier this year after actually dipping below them last summer.
Multiple Concerns
In the general course of business, and port strikes aside, navigating supply networks, especially international supply networks, will continue to be challenging. Lisa Anderson of the LMA Consulting Group, which advises business on supply chain, said a major challenge shippers face today is the number of disrupting factors occurring at the same time. Any one factor might not touch on or disrupt a particular supply chain for a given industry, but the number of factors occurring together puts pressure on the entire logistics environment and makes planning all the more problematic.
“Supply chain is rife with disruptions, and it’s not going to change any time soon,” Anderson said. “Too much volatility out there, uncertainty and ambiguity. That makes more and more of these disruptions arise. Recently, there was a drought in the Panama Canal, and that caused the capacity to be reduced by about 50%.”
The backup for product movement that was going through the Panama Canal to the East Coast of the United States was the Suez Canal until the Houthi rebels began attacking freight vessels in the Red Sea, which caused many carriers to avoid that alternate route. The attacks continue on an irregular basis, but they remain a constraint on trade. Then the Francis Scott Key Bridge collapse in Baltimore closed one of the nation’s busiest ports. The main channel reopened in June, but officials in Maryland don’t expect carriers to fully reroute to the port from alternates until next year.
“When you get into this time of volatility,” Anderson said, “people look for more sources of supply, (such as) reshore, and they start to move things around, and that creates further disruptions. Disruptions are going to continue. Companies have to be thinking about the best way to navigate that successfully and get ahead of the game.”
Retailers and their suppliers should consider whether they have sufficient internal expertise to preposition inventory and find alternative sources of supply amid disruptions. Of note, Mexico surpassed China as a U.S. trading partner in 2023 as a result of nearshoring and remained on top through the first half of 2024, demonstrating the nearshoring trend has become a bigger factor in global trade dynamics.
The Purchasing Managers Index from the Institute for Supply Management is important to anyone interested in immediate shipping trends. Decisions made about purchasing are the foundation of shipping demand. The PMI for manufacturing has been in contraction territory recently, but not down so much as to suggest that the overall economy is contracting. The PMI for the services sector has been tending toward expansion. The third sector ISM monitors, hospitals, has been in positive territory all year. Overall, the PMI and Supply Chain Volatility Index suggest some slack in shipping demand going forward, which could translate into at least plateauing, if not easing rates, putting strikes and international developments aside.
Originally published on Homepage News, 17 October, 2024