Suez Canal: Supply chain mess

There are two shortcuts to moving goods around the world, the Suez and the Panama Canal. Drought has more than halved the traffic able to sail through the Panama Canal that connects the Atlantic and Pacific Oceans. That was bad enough, but the alternative shortcut around the world has all but shut down.

This is a serious matter since maritime transport accounts for 80% of global trade. Under normal circumstances, the Panama Canal would account for about 3% of that global trade and 46% of container traffic moving from Northeast Asia to the East Coast of the U.S. On average, more than 13,000 vessels passed through the Panama Canal per year until last year.

Climate change, and now the El Nino climate pattern, has sabotaged Panama’s ability to keep the system of water locks and infrastructure functioning properly. What is worse, Panama’s dry season began last month and will run into April 2024. That is draining even more water from the locks. As such, the prolonged waiting times and capacity limitations that have plagued the man-made 40-mile canal will not be alleviated anytime soon.

This has already delayed American exports of grains bound for East Asia. In the case of Japan, U.S. corn exports account for more than 65% of that country’s needs and 71% of its soybean imports. It is only a matter of time before these delays begin impacting the Japanese consumer. The Panama bottlenecks have also increased costs. Shippers have bid up the price for a transport slot through the canal as waiting times lengthen. A slot can now cost anywhere from $1.4 million to $2 million. That effectively raises the price of transporting grain to Japan from the U.S. by 50%. Charter rates have also increased by about 30% as well.

Given this background, is it any wonder that shippers had decided to opt for the Suez Canal, instead, even though it adds about 18 days to the trip? And that is where the shippers found themselves between a rock and a hard place.

The Israeli/Hamas war started in October of 2023. It did not take long for those aligned with Hamas to begin retaliating against Israel and its allies. Over the border, missiles and drones failed to avoid Israel’s air defense system. In late November 2023, the Houthi rebels found an easier target. Armed attacks against defenseless container ships in the Red Sea were launched by the Houthi Militia. To date, the Iran-backed militia that controls northern Yemen is targeting all shipping, some with not even a remote connection to Israel.

For those who are unaware, the Red Sea is a narrow strip of water, west of Sudan and Saudi Arabia and Yemen to the east. At the northern end of the sea sits the Suez Canal. At the southern end lies a strait, called the Gate of Tears, which borders Yemen. It is where the Houthis have been targeting many of the tankers and container ships with increasing ferocity.

This waterway is a crucial piece of the world’s supply chain. Up to 15% of the world’s shipping sails through the Suez Canal. It is the most direct ocean route between Asia and Europe.

And now it has become part of what appears to be the tip of a widening conflict in the MiddleEast.

In the maritime industry, shipping companies can buy war risk insurance. Almost overnight, the premium on this kind of insurance went from 0.02% to 0.7% of the total value of the ship and its cargo. Container ships can easily carry hundreds of millions of dollars’ worth of cargo, so insurance fees alone are now in the millions. Shippers are now passing on those extra costs by charging higher fees for transporting cargo in that area. Average costs to ship containers have doubled in the last two months.

As more and more attacks occurred, shipping companies began rerouting vessels to avoid the area altogether. For those vessels who were already on a detour from using the Panama Canal, costs are continuing to mount. The new alternative route has ships going around the Horn of Africa, and then back into the Mediterranean. That route can tack on an extra 14-15 days to a trip already delayed by avoiding the Panama Canal.

The costs of extra fuel, labor, and penalties for late deliveries must now be added to already sky-high shipping fees. Europe and Asia are feeling the brunt of this extra cost. But in the end, I suspect that given the interconnectedness of global supply lines, it should be only a question of time before the U.S. is also whacked from this new threat to global supply chains.

Bill Schmick is a founding partner of Onota Partners Inc. in the Berkshires. None of his commentary is or should be considered investment advice. Email him at bill@-schmicksretiredinvestor.com.

The views expressed here are not necessarily those of The Millerton News and The News does not support or oppose candidates for public office.

Latest News

Pine Plains residents call for Supervisor's resignation, Council aims to 'move forward'

Diana Woolis, right, delivers criticism of Pine Plains Town Supervisor Brian Walsh during a regular meeting of the Town Board on Thursday, March 19. Woolis said she was saddened by recorded statements Walsh made where he suggested library budget funds could pay for surveillance cameras in the town.

Photo by Nathan Miller

PINE PLAINS — Residents called for Town Supervisor Brian Walsh's resignation after released records revealed he communicated with surveillance company Flock Safety multiple times about installing cameras in Pine Plains.

Town Board members offered a contrasting message, emphasizing a desire to move forward to work on other projects at their regular meeting on Thursday, March 19. Walsh responded by saying he would share information freely with board members, but otherwise did not offer a detailed statement.

Keep ReadingShow less
Millbrook residents back Thorne Building renovation plans, seek details on lighting and accessibility

Architect Michael Sloan of Millbrook-based firm Sloan architects describes plans for the proposed Thorne Building renovation to the public for the first time at a public hearing of the Millbrook village Planning Board on Monday, March 16, at the Millbrook Firehouse on Front Street.

Photo by Nathan Miller

MILLBROOK — Community members had a chance to weigh in on plans to renovate the Thorne Building on Franklin Avenue into a state-of-the-art event and community center.

Architect Michael Sloan of Millbrook-based Sloan Architects outlined a proposal that includes a rear addition to expand the stage, an enlarged parking lot, new exterior lighting, a front garden and the removal of the portico on the building’s east side. Sloan said the building, originally constructed as a K-12 school, would be transformed into a space for the community to gather and create.

Keep ReadingShow less
Officials divided on allowing restaurants along Route 22

The Irondale district, currently known as Highway Business District III, is comprised of just six parcels along Route 22 that are currently occupied by light industrial businesses.

Photo by Nathan Miller

MILLERTON — Though the Irondale District lies just outside of the Village of Millerton, it has become the center of a divisive conversation as the Town of North East continues to review a significant overhaul of its commercial zoning code.

Irondale, officially known as the Highway Business district under current town code, is a small stretch along Route 22 south of the village that some officials and residents believe could support additional businesses, while others argue development there could undermine efforts to boost Millerton’s existing downtown.

Keep ReadingShow less
google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.

Robin Wall Kimmerer urges gratitude, reciprocity in talk at Cary Institute

Robin Wall Kimmerer inspired the audience with her grassroots initiative “Plant, Baby, Plant,” encouraging restoration, native planting and care for ecosystems.

Aly Morrissey

Robin Wall Kimmerer, the bestselling author of “Braiding Sweetgrass” and a member of the Citizen Potawatomi Nation, urged a sold-out audience at the Cary Institute of Ecosystem Studies on Friday, March 13, to rethink humanity’s relationship with the natural world through gratitude, reciprocity and responsibility.

Introduced by Cary Institute President Joshua Ginsberg, Kimmerer opened the evening by greeting the audience in Potawatomi, the native language of her ancestors, and grounding the talk in a practice of gratitude.

Keep ReadingShow less

Melissa Gamwell’s handmade touch

Melissa Gamwell’s handmade touch
Melissa Gamwell, hand lettering with precision and care.
Kevin Greenberg
"There is no better feeling than working through something with your own brain and your own hands." —Melissa Gamwell

In an age of automation, Melissa Gamwell is keeping the human hand alive.

The Cornwall, Connecticut-based calligrapher is practicing an art form that’s been under attack by machines for nearly 400 years, and people are noticing. For proof, look no further than the line leading to her candle-lit table at the Stissing House Craft Feast each winter. In her first year there, she scribed around 1,200 gift tags, cards, and hand drawn ornaments.

Keep ReadingShow less
Regional 7 students bring ‘The Addams Family’ to the stage

The cast of “The Addams Family” from Northwest Regional School District No. 7 with Principal Kelly Carroll from Ann Antolini Elementary School in New Hartford.

Monique Jaramillo

Nearly 50 students from across the region are helping bring the delightfully macabre world of “The Addams Family” to life in Northwestern Regional School District No. 7’s upcoming production. The student cast and crew, representing the towns of Barkhamsted, Colebrook, New Hartford and Norfolk, will stage the musical March 27 and 28 at 7 p.m., with a 2 p.m. matinee on March 29 in the school’s auditorium in Winsted.

Based on the iconic characters created by Charles Addams, the musical follows Wednesday Addams, who shocks her famously eccentric family by falling in love with a perfectly “normal” young man. When his parents come to dinner at the Addams’ mansion, two very different families collide, leading to an evening of secrets, surprises and unexpected revelations about love and belonging.

Keep ReadingShow less
google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.

google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.