Panama Canal Delays Will Continue to Cause Grief for Supply Chains
Since the Panama Canal was completed in 1914, it has never faced a drought as extreme as the existing one. In an effort to conserve water, the Panama Canal Authority has limited ship passage this summer, placing a strain on supply chains. According to an article by CNBC, “40% of all U.S. container traffic travels through the Panama Canal every year.”
The line of ships waiting to cross the Panama Canal is yet another visible reminder of global trade’s reliability upon a limited number of routes. You might remember the ship that got stuck in the Suez Canal in March 2021, holding up nearly $60 billion of trade! Although the long-term consequences of the Panama Canal restrictions remain unquantified, conditions are only expected to get worse. Panama Canal Administrator Ricaurte Vasquez told Reuters the economic impact of the restrictions will hit hardest this October.
Just like the Panama Canal administrators have been forced to rethink how to best protect the water supply, many companies are rethinking how to best defend their supply chains. As we have previously mentioned on this blog, nearshoring is one strategy that firms are employing. To shorten the distance between suppliers and the North American market, some companies are taking advantage of manufacturing opportunities in Mexico.
A study that analyzed supply chains’ exposure to climate risks identified many other tactics that companies can use. Investing in artificial intelligence that provides early detection of climate threats, as well as working with suppliers to create backup plans were among the suggestions.
In addition to the Panama Canal congestion, an SEC rule could also motivate companies to confront climate threats. Although not yet in effect, the agency has proposed a rule that would require registrants to reveal climate-related risks in its reports. To learn more about environmental compliance obligations and best practices for implementing sustainability measures, MHI members can visit the MHI Sustainability Resource Center.
