Is now the time to move to in-region manufacturing?
It’s January 2024 and global supply chains are at risk of disruption again. Merchant shipping through the Red Sea and Suez Canal is being attacked by Houthis rebels in Yemen in protest about the war in Gaza. On the other side of the Atlantic, prolonged drought has affected vessels travelling through the Panama Canal causing frequent delays as fewer ships are allowed to pass through the canal each day.
Prior to COVID and the war in Ukraine, over 400 million tons of containerised cargo per year would be transported via the Suez Canal. This was made up of a range of consumer products from clothing, and furniture, to car parts. Other commodities transported via Suez included on average, 80 million tons of crude oil, 43 million tons of grain, 36 million tons of chemicals and 30 million tons of ores and metals per year. As a result of the attacks by Houthis, trade volumes through the Suez Canal are reported to have dropped by 40%.
Shipping through the Panama Canal has not been affected by war but by climate change. The lakes that feed the Panama Canal are drying up due to lower than average rainfall. The locks that connect the Atlantic Ocean to the Pacific via Gatun Lake are nearly too shallow to let the largest container ships through. Water levels in Gatun Lake have fallen by almost 10 feet.
To conserve water, the Panama Canal Authority has imposed several restrictions on shipping. The number of vessels allowed to pass through has fallen from 38 per day in 2022 to 24 per day in January 2024. Since 2020 all shipping vessels over 125 feet in length have been charged a fixed fee of US $10,000 per transit as well as a variable fee dependent on water levels in the canal. The Panama Canal is now a bottleneck where shipping can be delayed for days.
Like the Suez Canal, the Panama Canal is a major shipping route for container cargo and commodities such as petroleum and petroleum products, ores, minerals, chemicals and grain.
For companies that want to be more resilient, now is a good time to review supply chains and the risks associated with those supply chains. One option is to move to an in-region manufacturing business model where suppliers and manufacturing sites are located close to customers. This solution resurfaced during COVID when biopharma companies were struggling with severe supply chain disruptions. However, some companies like Lubrizol adopted this strategy decades ago. It has been a key aspect of Lubrizol’s expansion plans for their specialty chemicals business in India since the 1960s. Businesses that manufacture in the market they sell into experience fewer delays, complications and costs associated with transcontinental logistics.
Supplier/manufacturer searching is one of the services offered by Strategic Allies. We are experienced at looking across a broad range of industries, in different geographic regions, from food and beverage ingredients to specialty chemicals and industrial components. Contact us today to find out more.