After being employed in logistics for over 20 years, one thing is for sure: there is never a dull moment in the shipping and logistics industry. Every year, we face new challenges, some expected and some unseen.
In this article, I will try to digest both expected and unexpected challenges and trends so that we can attempt to minimize surprises in shipping and logistics for the rest of 2024.
1. The Effects of Issues at the Panama Canal
Issues around the Panama Canal are actually a big problem that has been happening for years. With climate change, the situation appears to be getting worse.
Around $270 billion worth of goods are passing through the Panama Canal every year. Even though the daily capacity is 38 ships during normal times, the current volume is down to 24 ships a day. To put this into perspective, water levels are around six feet lower than where they should be. Panama Canal authorities are looking into potential long-term solutions like pumping water into the canal or artificial cloud seeding, but these are longer-term costly solutions.
While this happens, shipping lines are outbidding each other so that they have priority in passing. This, in turn, raises container pricing for importers, putting further pressures on inflation.
2. The Effects of Problems at the Suez Canal
In the past, when the Panama Canal had problems with drought, carriers switched to the Suez Canal as an alternative where the transit time is longer but still manageable.
However, with the ongoing geopolitical situation in the Red Sea where Houthis are attacking cargo ships, the Suez Canal is becoming a less-used alternative. Right now, most of the shipping lines are using the Africa route and not taking a chance when it comes to the Suez Canal. This revised routing has cost implications due to the longer overall route and vessel positioning. Most of the public did not hear about Houthis until recently since they were mostly under the radar, but it is a group that has been active close to thirty years. And, for the last decade, they were fighting with a Saudi-led coalition in Yemen.
The consensus so far is that the situation in the Red Sea will not get better for the next 5-6 months, and per some estimates, even if the conflict in Gaza is solved tomorrow, it will still take approximately 3-4 months for shipping companies to get back to where they were before the disruption.
The above 2 effects are widely known and already considered by both importers and carriers, but there are a few things to watch out for in the coming months.
1. Equipment Imbalance
During the Covid pandemic, carriers increased their order book of vessels. Even though the intention was not to be ready for the next disruption, it did solve the current problem.
Carriers still have enough vessels to deploy now, though the silver lining is that the rotation of a single vessel takes much longer. However, the movement of containers from one part of the world to the other is affected, and soon, we expect equipment problems to arise in Asia. Today’s vessels are much bigger with more capacity than before so the more those vessels are stuck in canals or alternative routeways, the more boxes will be stuck, too.
When the Chinese Lunar New Year holiday fully ends and we move closer to busy summer months, we could see additional surcharges by carriers for equipment imbalances. Importers also outbid each other for empty equipment during the Covid pandemic, so the situation could escalate quickly during the peak season.
2. ILA Contract Renewal
Last year, a new International Longshore and Warehouse Union (ILWU) contract was signed for six years. However, East and Gulf Coast port workers will see their contract coming up for renewal this year, with the existing contract ending September 30th.
Even though we still have time until September, many importers at East and Gulf Coast ports will get anxious during the summer if the contract is not signed by then. The reason is that transit times are now longer, so most importers at East and Gulf Coast ports will not take a chance to ship their goods during summer via all water service. This increases the risk of a shutdown during the worst time: the coming holiday season.
Additionally, these pressures will also affect cargo owners on the U.S. West Coast and inland, as the added pressure of pent-up demand will drive pricing higher for U.S. West Coast cargo. This will also put more pressure on rail service servicing via West Coast routes to inland locations since less rail service is utilized via the East and Gulf Coast port regions, so inland customers will probably see more delays in receiving their goods.
Still, the expectation is the situation should not be as bad as during the Covid pandemic, since the demand pressure is not as high as it was during that time. Additionally, railroads and truckers are much better-prepared than before.
The Bottom Line
In short, 2024 is poised to be another interesting year. The expectation is it will not be as bad as the Covid pandemic period, but it will also not be as smooth as last year. Once again, carriers increased their vessel order book for other purposes and luckily, their timing could not have been better for the shipping and logistics industry.
