by Elizabeth Anderson
Many Americans have become a little too comfortable with getting what they want when they want it. If they need a food item, they head to the grocery store. If they order a product online, it’s on the doorstep in 2 days or less. But that won’t be the case if the US supply chain comes to a halt.
Think back to the supply chain disruptions brought by COVID-19. Everything from food items to disinfectant wipes to printer ink disappeared from store shelves all because of disruptions to the supply chain. When one part of the supply chain halts, it has ripple effects that move down the chain until it affects you and me.
According to the United States Trade Representative, “The United States is the largest goods importer in the world. U.S. goods imports from the world totaled $3.2 trillion in 2022, up 14.6 percent ($413.7 billion) from 2021.” In other words, we import A LOT.
Much of what we import must pass through four choke points, which means if something happens to one of these passages, it will slow everything down (and possibly halt things for a time).
The Suez Canal is a man-made waterway connecting the Red Sea to the Mediterranean Sea. About 12% of global trade passes through the Suez – or $9 billion daily. In 2021, a cargo ship blocked the Suez Canal for 6 days, severely delaying the supply chain and costing billions. The story made international news because it had an international effect – and all because high winds blew the ship off course.
As the primary route for goods from India to Europe, it is important to note that it is not just weather or natural disasters that can lead to choke holds in this passage. Experts believe “More than 6 out of 10 global organizations expect that geopolitical instability may have a detrimental impact on their supply chains in the next 3 years.” Considering the current conflict raging near the Suez Canal and the instability of those countries that rely on the Suez Canal, it is easy to see why this choke point may lead to supply chain issues soon.
According to Christian Roeloffs for Hellenic Shipping News, “In the case of the conflict in Israel, any expansion of the hostilities beyond the country’s borders could introduce risks to two vital shipping choke points. The Suez Canal, a critical waterway for various commercial vessels, including container ships, may face disruptions. […] However, the extent of these effects will largely depend on the conflict’s expansion and duration.”
Strait of Hormuz
The Strait of Hormuz is a naturally formed waterway between the Persian Gulf and the Gulf of Oman. If this passage becomes blocked, it will be a major problem. Why? Because it is the “backbone for oil and gas shipping.” Reuters reports, “About a fifth of the volume of the world's total oil consumption passes through the Strait on a daily basis. An average of 20.5 million barrels per day (bpd) of crude oil, condensate, and oil products passed through Hormuz in January-September 2023.”
Given its importance, it’s a major target for terrorism and piracy. Today, experts are worried that the fighting in Gaza could potentially spread to the Strait of Hormuz. Maritime Executive suggests, “If Israel decides to take retaliatory action against Iranian forces or their proxy groups, Iran could move to restrict transits through the Strait of Hormuz for tankers with Israeli or American ties. The IRGC's naval division maintains a flotilla of small attack boats, which can harass, board, and seize merchant ships - or damage them. Elevated risk could raise insurance rates or reduce the supply of tankers willing to make the journey; either would affect the oil market.” JP Morgan believes if this happens, “it would shut down the region’s oil trade, supercharging oil prices.”
The Strait of Malacca is a narrow waterway that passes between the Malay Peninsula and the Indonesian island of Sumatra, and it serves as the world’s shipping lane between the Indian Ocean and the Pacific. Almost 100,000 ships utilize this waterway annually, an estimated 40% of global trade. Like the Strait of Hormuz, it is also a major oil gateway. Additionally, it is a major shipping lane for important products from Chinese imports, including medicines and metals. This strait is a choke hold risk because it’s known for piracy and terrorism.
“Statistics released by the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia Information Sharing Centre in the first half of 2023 showed that the Malacca Strait had witnessed 38 incidents of piracy, a 41 percent rise over 2022.” Additionally, extreme weather and collisions have caused many blockages through the years.
As if that wasn’t concerning enough, Future shares, “Researchers are warning that it's only a matter of time before a natural disaster like an earthquake or volcano strikes the region – and when it does, we can expect global consequences.”
The Panama Canal
Closer to the US, the Panama Canal is a man-made waterway in Panama connecting the Atlantic Ocean to the Pacific Ocean. Given its location, it is safer than other supply chain choke holds simply because it is a more stable geopolitical area. However, US military officials believe the Panama Canal is a “dream come true” for terrorists. Besides the serious threat of terrorism, the Panama Canal is currently suffering from a severe drought.
According to an October 31, 2023, article from the American Journal of Transportation, “A drought is limiting ship traffic through the Panama Canal. The resulting delays caused shipping rates through the Panama Canal for Very Large Gas Carriers (VLGCs) to reach record highs, which increased the cost of shipping liquefied petroleum gas (LPG) from the United States.” As of press time, experts are already warning of holiday shipping delays due to the drought conditions at the Panama Canal.
Everstream Analytics reports, “If container lines are forced to continue to load fewer containers, we could see issues for US companies trying to replenish inventories ahead of the year-end holiday season — for everything from Christmas decorations to furniture and toys.”
How to Prepare for Supply Chain Issues
Supply chains will continue to face the occasional hiccup. However, if one of these major choke points is blocked, there will be serious repercussions felt worldwide. Here is how you can prepare for a major supply chain issue.
Stay aware – Stay aware so you can prepare. When you hear the news discussing these particular choke points, pay attention. Know what is coming from where so you can better anticipate delays and shortages.
Anticipate shortages – Think ahead. What are items you can’t live without? Keep extra medications and batteries on hand just for this reason. Fill your pantry with long-term emergency food.
Be resourceful – If there is a major supply chain disruption and you can’t find what you need, be resourceful. For example, during the first wave of COVID-19, we found ways to bake bread without yeast. There are also household items, such as baking soda and vinegar, which you can use for a variety of cleaning tasks.
Prepare for supply chain issues, friends. It’s not a matter of if. It’s a matter of when.