How The Panama Canal Drought Exposed Supply Chain Weakness
Asian shipments are taking longer to arrive. Here’s what you should do about it.
The Panama Canal is one of the most important shipping routes in the world, connecting the Atlantic and Pacific Oceans. Right now, it’s facing a major problem: a severe drought lowered water levels in the canal’s reservoirs, making it tougher for ships to pass through. This slowdown is causing delays, especially for chemical shipments from Asia to the U.S. Since many manufacturers rely on these deliveries, the disruption is a pretty big deal. It’s also a reminder of how important it is to secure supply chains and use redundant sourcing strategies to mitigate risk.
The Panama Canal is a critical link for chemical shipments from Asia to the U.S. Countries including China, South Korea, and Japan are major exporters of strategic raw materials. These shipments typically pass through the canal to reach the East Coast for lower costs and expedited deliveries. With about 40% of U.S. container traffic from Asia passing through the Panama Canal [1], any disruption - particularly this drought - creates a ripple effect across supply chains.
Because of the drought, the Panama Canal Authority (ACP) was forced to reduce the number of ships allowed through each day. Additionally, vessels now carry less cargo to meet stricter weight limits. Together, these factors result in delays and restrictions.
How does this impact deliveries?
Delays and bottlenecks: Fewer ships cross the canal each day, leading to backlogs. Time-sensitive chemical shipments are stuck in long queues, disrupting production schedules and impacting end customers.
Higher shipping costs: With restrictions in place, some companies are rerouting their shipments around the southern tip of South America, South Africa, or through the Suez Canal, all much longer and more expensive routes. This can add up to two weeks on the water and considerably increase fuel costs.
Inventory shortages: American companies that rely on timely shipments for critical manufacturing are facing inventory shortages and turning to business contingencies.
What can be done to mitigate risk?
Secure supply chains: Manufacturers should be proactively planning ocean and air shipment options with their vendors and freight forwarders, reassessing on- and offsite safety stock levels, and considering alternative production sites for critical products. Conversely, downstream customers share an obligation to challenge the business contingency plans of their suppliers.
Source redundantly: Instead of sole sourcing from Asia, manufacturers should be diversifying their suppliers, with a look toward India, Eastern Europe, and the Americas for new vendor options. While this might be more expensive initially, it reduces the risk of future disruptions.
Don’t procrastinate: Buyers should be looking well beyond the next quarter and reviewing preliminary forecasts for 2025 now. Complacency with vendor selection and ordering patterns exposes risk. As the financial sector likes to cite, past performance is no guarantee of future results.
In summary, the Panama Canal drought is causing major delays in chemical shipments from Asia to the U.S., leading to higher costs, production slowdowns, and potential inventory shortages. This situation highlights the need for businesses to secure their supply chains and consider redundant sourcing strategies. By diversifying their suppliers and building more resilient logistics networks, companies can better protect themselves from unexpected disruptions and keep their operations running smoothly.
Need to improve your supply chain security with fresh sourcing options? Reach out for an initial consultation today.