Introduction
The world of Supply Chain faces a multitude of potential challenges in 2024. From geopolitical tensions to weather-related disruptions, supply chains are at the mercy of various risk events. In this blog post, we will briefly go over the possible scenarios that could unfold and their potential impacts on supply chains.
Suez Canal throughput remains limited
Taking MAERSK example, in the beginning of January they have just canceled all sailing through the c... while some of the other shippers continue with US Navy and coalition forces facilitating the passage of merchant ships through the canal and thwarting Houthi attacks. It seems that the Houthis are being selective in their targets, preferring some ships over others. Nevertheless, coalition convoys come with a substantial cost and the traffic is much lower since everything started:
The challenge here is to maintain confidence in commercial shipping along the Red Sea route because the Naval Coalition requires a flawless success rate. On the other hand, the Houthis only need an occasional successful strike to instigate a fear in charterers and owners, dissuading them from utilizing the Red Sea route. Depending on the situation in the region, the length of shipping and prices may change throughout the year..
The traffic alongside the Red Sea may remain low for the foreseeable future. This results in a delay of about 30% on a typical sea journey from Shanghai to Rotterdam that routes through Africa instead of the Suez Canal (trip time of 38 days instead of 29 days).
Moreover, sea transit capacity works as a connected system. If there is a problem at one chokepoint, the other chokepoints experience higher traffic and longer queues which cannot be solved by simply bringing more container ships onto the sea, as these take years to build.
Let’s look into how air traffic will be impacted from the situation. Let’s assume that some companies will decide to switch from sea to air because they need their key goods from Asia sooner. While a modern container ship can carry over 10,000 containers, a typical Boeing 747 used for air freight can only handle about 7 containers at a time. So, even if a small amount of cargo switches from sea to air, it could strain the already tight air freight capacity, especially with the booming e-commerce volumes we are experiencing. The Suez Canal handles about 10% of global trade, and all of that will have to be redistributed elsewhere. Historically, the closure of the canal is not unprecedented, as we have experienced closures in the past (the longer one being 8 years!).
Persisting Panama Canal Issues
Throughput capacity of the Panama Canal remains impacted. Most experts (including the Canal Authority) are predicting that the current Gatun Lake water level crisis will persist at least until the summer of 2024. This is in line with El Niño pattern lasting until then and keeping both Americas rather dry. As of now, The Panama Canal Authority has announced new restrictions to the number of daily transit through the Canal, with the number of booking slots reduced from the current 7 slots to 6 from Dec. 1, and to 5 from January 2024.
As of now this is impacting LPG shipping rates. If situation worsens, we may have more container ships going around which will lead to delays in deliveries and higher energy prices (think: oil, gas).
Weather anomalies in Americas
The unpredictability of weather patterns poses a significant challenge to the supply chain in the Americas for 2024. For instance, past couple of years have seen awful droughts in the Mississippi basin, which has limited US grain exports, causing massive price volatility, as well as stressed US diesel and train capacity to get US exports out when the water is too shallow for the barges. Limited throughput on land is going to be a bottleneck triggering delays across whole Supply Chain in the US.
Another example - The February 2021 Texas ice storm, dubbed Winter Storm Uri, stands as a stark reminder of the fragility of even the most robust supply chains. The storm's icy grip froze pipelines and shut down refineries, causing cascading disruptions. Chemical plants reliant on these raw materials sputtered to a halt, impacting everything from plastics and fertilizers to pharmaceuticals and paints. The domino effect of these disruptions rippled far beyond Texas' borders. Manufacturers across the nation, reliant on Texan-made materials and components, faced production slowdowns and shortages. The automotive industry, for example, grappled with a lack of essential resins and plastics, contributing to the ongoing chip shortage had to further extend car delivery times.
On the flip side, extreme flooding is also a looming possibility in 2024, bringing its own set of challenges. Floods typically hinder Brazilian iron exports, leading to increased ore prices and this has a downstream effect on the pricing in manufacturing. Another concern is the prospect of an active US hurricane season, with implications for fuel markets. The Gulf Coast states, housing the majority of US refining capacity and export facilities, become vulnerable during such events. In recent years, subdued hurricane activity has been noted, but this trend is statistically less likely to persist. Hurricanes impact fuel markets through panic buying, shipping rushes to evacuate cargoes, refinery shutdowns, and post-storm construction demand. Prolonged refinery closures, as witnessed in 2020, can create imbalances in fuel markets, prompting other refineries to catch up with demand while short-term fuel inventories decline. The interplay of these weather anomalies underscores the need for robust contingency planning and resilience in the supply chain to navigate the challenges of 2024.
Military conflict escalation
The prospect of military conflicts escalating in various regions poses a grave concern for the global supply chain in 2024. One potential scenario is a large-scale war in the Middle East, where ongoing attacks on shipping could escalate into a regional conflict involving more countries or where the situation in Gaza will get more countries involved. Such a war would target economic assets and have profound effects on shipping and global energy markets as a lot of countries is Oil and Gas producers in the region. The disruption could lead to skyrocketing energy prices and increased transportation rates.
Likewise, the outcome of the Russia/Ukraine conflict remains uncertain, with the potential to involve more countries. Lastly, the upcoming elections on the most crucial island for chip manufacturing invariably heighten tensions with China. While the likelihood of kinetic conflict is low, the possibility of blockages or tensions causing prolonged temporary paralysis is a scenario within the realm of possibilities.
There is no single solution, you need a Swiss Knife instead
So, we've surveyed the potential supply chain storms brewing in 2024: Suez Canal disruptions, Panama Canal limitations, volatile weather in the Americas, and the ever-present shadow of military conflict. It's enough to make any logistician break into a cold sweat.
There is no single solution to all potential problems mentioned above. What you need is to have a repertoire that you can quickly use depending on situation. You need a Swiss Knife for your Supply Chain. A tool flexible enough to allow you to solve or mitigate the challenge you are dealing with.
Some challenges you will fix by:
- Sourcing from different suppliers which will allow you to have a plan B or have an alternative transportation route if your primary supplier or contract manufacturer is not reachable. [click here to see how others do it]
- Some logistic problems need to be spotted before it is too late, you need visibility to take action as quickly as possible. [click here to see how others do it]
- You will need to be more flexible when it comes to your inventory depending on the situation you may have to increase the stock or push the storage onto your suppliers through consignment process [click here to see how others do it]
- Planning process needs to be digital and synced up with your ERP real-time at least with your critical suppliers. It is 2024, no time for excuses to not have it done this way. [click here to see how others do it]
Having a Business Network allows you to to fortify your defences against the potential disruptions in 2024 and ensure resilience thanks to extensive sourcing options on the Network as a proactive measure. Moreover, by integrating your ERP to Network and digitising procure to pay cycle and your logistics, you get a real time analytics into your Supply Chain and you can react quicker to events on the horizon. Your suppliers or contract manufacturers also benefit from you using just Network because they use a single platform with your organization to perform all the tasks you ask them to do. A lot of these organisations are already using SAP Business Network, so they just add one more business relationship to the same account. With SAP Business Network by your side, you're ready to weather any storm and keep your supply chain sailing smoothly.
Click here to learn more about SAP Business Network.
Click here to find a SAP certified partner that could help you implement the solution.
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