Every Obstacle at Sea Has Ramifications on Land
For hundreds of years we’ve relied on well charted waterways to move goods from one part of the world to another. It’s easy to take the maritime transportation network for granted. Many of us see trucks, trains and even planes transporting goods everyday. We have a frame of reference for how the things we use or consume get from one place to another. But, most of us don’t regularly see the intricate waterway systems at work.
An estimated 90% of all goods are transported via ship, up and down a river or across an ocean, at some point in their journey to market. Surprisingly, it's still very much the same as it was several hundred years ago. Wars are still fought at sea, pirates still roam, and mother nature can throw a wrench in even the best laid plans. When it comes to the transport of goods, every obstacle at sea has a ramification on land.
Geopolitical Risks
Not so long ago piracy resurfaced as a major issue affecting supply routes. Hotspots have included East African waterways and South China Seas, and lately the Suez Canal. In some cases, increased pirate activity is the result of economic imbalances in a given region. Lack of job options in these areas has played a part in increased pirate activity. In other situations piracy is a direct attack on supply chains for the sake of gaining leverage. Just this month in the Strait of Hormuz, Iran’s Islamic Revolutionary Guard seized a large vessel which news reports say was intended to be a strategic blow to Israel.
Already the Red Sea has been risky for ships. Several have been caught in the crossfire between Israel and Iran which has prompted many shipping companies to bypass the area altogether. Commodity ships have been rerouted down the African coast. The detour can add up to 14 days of travel which significantly impacts fuel costs. Depending on the size of the vessel, a ship rerouted from Asia through the Cape of Good Hope would need an extra $200,000 to $300,000 in fuel to reach Europe.
War on the seas impacts consumer prices and the availability of goods on land. The Suez Canal is a major waterway for the transport of palm oil, grains, tea and coffee leaving Thailand, salt and fertilizer from India, vehicles and vehicle components from Asia and Germany, and crude oil headed west.
In some cases, production of goods has come to a halt in response to inventory buildup that is unable to be safely transported or, because a company can not receive shipments of components necessary for production. While on the demand side, any business that operates on just in time inventory is having to restructure timelines in anticipation of rerouted ships.
Changing Water Levels
Flooding and drought are also risk factors that have the potential to significantly impact supply lines. The Mississippi, Yangtze, Rhine and Manaos rivers are all experiencing bottleneck situations because of low water levels. At other times, these same rivers have been dangerous for ships and barges because of high water levels. High levels make it difficult for ships to dock and goods hard to load or offload.
Currently, the Panama Canal is extremely low due to drought, the worst the region has experienced since the 1950s. On a typical day the canal will accommodate 35 or more container ships and bulk carriers. Recently, the number of vessels being allowed passage has dipped as low as 24 a day. The backup of ships has compounded over the last few months causing some companies to use railways instead. Others have opted to load less goods onto container ships to secure their passage across the canal.
Over 500 million metric tons of goods travel through the canal every year. Crude oil, natural gas, grain crops, and frozen food items make their way to the next point on the supply line.
In a March report polling 3,163 businesses, 50% said they were actively engaged in addressing drought issues for the future security of their goods. Collaboration, data collection and technology were mentioned as possible growth areas. At least 79 companies said that water shortages were affecting their supply chains and that they plan to invest in better water management practices.
Coca Cola is one such company. They see the drought in Panama as a sign of a larger issue that can be addressed at other points along the supply chain. Smarter use of water might not make it rain more, but it is one way large companies can contribute to preserving a resource that is very necessary to the transporting of goods.
These waterways are old and well used, but that doesn’t make them impervious to manmade or natural risks. There is always more room for collaboration and innovation.