Global pre-Christmas trade at risk from twin canal crises

Friday, 21 June 2024

Simultaneous disruption in the Panama and Suez canals, two vital corridors for global trade, is threatening global supply chains in the run-up to Christmas.

Shipowners and importers have warned that a drought in the Panama Canal and a spate of attacks on cargo vessels 11,500km away near the Suez Canal risk constraining traffic ahead of the festive season.

“There are supplies that just won’t be here in time for this Christmas,” said Marco Forgione, director-general of the Institute of Export and International Trade, which represents importers across the UK.

After months of delays through the Panama Canal, consumer electronics such as iPhones “may not be readily available” and other importers have found it hard to acquire Christmas decorations in time, said Forgione. If attacks near Suez involving Yemen-based rebels worsened, the combination of that and the restrictions in Panama would be “catastrophic”, he said.

More than half of the container shipping by volume scheduled to link Asia and North America was set to cross either the Panama or Suez canals during the third quarter of this year, according to trade analysis group MDS Transmodal.

This October was the driest in the Panama Canal region since at least 1950, according to the canal authority, partly owing to the El Niño weather phenomenon that has affected temperatures and rainfall globally. The authorities have for the first time reduced the number of crossings, which by February will be limited to only 18 ships a day.

“That drought in the Panama Canal is a serious concern,” said Rolf Habben Jansen, chief executive of German group Hapag-Lloyd, the world’s fifth-largest owner of container ships, which ferry most of the world’s manufactured goods.

At least 167 ships crossed the canal during the first week of December this year, compared with 238 last year, according to trade analysis group MarineTraffic. Ships without bookings were waiting an average of 12.2 days to cross the 50-mile-long canal from the Pacific to the Atlantic, with some stranded for more than two weeks, according to the canal authority.

Faced with increasing delays, Hapag-Lloyd and its peers have been forced to take longer and more costly routes, with the German group announcing the diversion of at least 42 ships from Panama to Suez for trade between Asia and the US east coast.

However, a sudden spate of attacks on vessels by the Yemen-based Houthis have alarmed the global industry, even though the Houthis have said they are only targeting ships linked to Israel.

“How do they know who is the ultimate shipowner?” said a trader at one European shipowner and commodities trading house. “They could think: ‘That ship is going to Israel. So we will take a pop at it.’”

He added: “The Panama Canal is effectively closed. If the same thing were to happen to Suez, how would you get grain [around the world]? That is when shipping rates start going up.”

Habben Jensen said Hapag-Lloyd did not have any ships linked to Israel that sail through the affected region. But he added: “We watch that situation closely and if needed, we will not hesitate to divert ships.”

“If the passage through the Suez would become more difficult [as well], that could cause serious disruption,” he said.

In an early sign of the disruption driving up the cost of goods, multiple shipowners have applied surcharges of hundreds of dollars per container for exporters sending goods through Panama, as the cost of using the canal at short notice increased by up to millions of dollars per ship passage. Hapag-Lloyd last week also announced an upcoming “war risk surcharge” of up to $80 for all shipments to and from Israel.

Switching routes from Panama to Suez adds five days to journeys between New York and Shanghai for ships travelling at a speed of 16 knots, according to MDS Transmodal. If more shipowners avoid the Suez Canal and take the long route around Africa’s Cape of Good Hope for journeys between the same cities, this could add an additional six days to their journey.

Forgione said the disruption had highlighted bigger questions about the resilience of global trade, and suggested alternative manufacturing sources and transport methods such as air freight should be considered.

“Government and business need to be looking at what a resilient supply chain looks like . . . There is little that can be done for this Christmas. [But] if nothing is done, I think there is a [risk of] shortages through the course of next year.”