Navigating geopolitical turbulence

by Derek Clouthier

Geopolitical disruptions are nothing new to the global supply chain sector over the past decade. Whether it’s the COVID-19 pandemic, Brexit, trade wars, or a natural disaster, logistics and supply chain companies need to be prepared for the inevitable.

Current tensions and events in the global supply chain are perfect examples of how industry, companies and consumers can be impacted, and how the resilience of logistics companies and shippers has become common.

With tensions high in the Red Sea due to Houthi militants in Yemen targeting commercial ships, and the ongoing impact of Baltimore’s Key Bridge collapse – which was recently destroyed in a controlled demolition – those in the supply chain have had to pivot to minimize the effect on delivery times and pricing.

Rerouting

Ports along the U.S. East Coast have made room for shippers unable to access the Port of Baltimore, but as Jena Santoro, senior manager of global risk intelligence for Everstream Analytics, highlights, this adds time, costs, and challenges to shippers.

“Added transit times both for shipping carriers and truck companies have unsurprisingly increased logistics costs,” says Santoro. “Vehicles typically transported from the Port of Baltimore to Dubai, for example, are now subject to an additional $1,050 fee for the transfer to the Port of Newark. Transporters have to choose to absorb these added costs or pass them on to customers and risk losing future business.”

Brendan Heegan, founder and CEO of 3PL company Boxzooka, agrees, pointing out that space has become a premium along the East Coast, and that comes at a higher cost, particularly on landside and air transport in the Mid-Atlantic region.

“With these operators functioning as a ‘band-aid’ while fulfilling their already committed obligations,” explains Heegan, “it means the cost of this transportation is higher, in some cases much higher, compounded by higher costs for the longer workaround routes that are being used to get around the Port of Baltimore.”

Logistics companies have also needed to navigate the situation in the Red Sea, rerouting shippers to avoid conflict with Houthi militants.

“Their need to reroute is requiring operators to use more container ships adding both to their fuel costs and emissions, which are expected to increase by an estimated 42 per cent per ship for a typical Asia to North Europe weekly liner service,” says Matt Goker, CEO of ATA, a logistics and freight forwarding service provider.

In addition to alternative routes adding to costs, Goker says operators are now delaying plans to replace aging fleets with more fuel-efficient ships.

“While freight rates are currently remaining relatively stable, there is the anticipation that they could increase as more manufacturers elect to use air cargo instead of shipping, which is 10 to 20 per cent higher in costs than shipping,” he says.

And pricing continues to elevate. A recent report from Container XChange indicates that container leasing rates from China to North America surged in the first quarter of the year, including to Canada.

February and March saw a significant spike on the China to Canadian ports, with Yantian to Toronto rates increasing by 68 per cent, Ningbo to Toronto up 35 per cent, Shenzhen to Toronto 26 per cent, Tianjin to Toronto 23 per cent and Qingdao to Vancouver up 64 per cent. The highest container lease rate increase was the Ningbo to Oakland, Calif., route, which saw a 92 per cent bump from February to March.

“China to North America one-way container leasing rates have increased particularly in 2024, with the rise mostly driven by a widening container price delta between China and the U.S.,” commented Christian Roeloffs, cofounder and CEO of Container XChange, an online container trading and leasing platform, in a release. “China becoming ‘more expensive’ up until March versus U.S. container prices stagnating or decreasing.”

Delivery times have also increased, with traffic through the Suez Canal, which connects the Mediterranean and Red Sea, instead being sent around the Cape of Good Hope in South Africa.

“The freight data firm Xeneta reported an estimated 90 percent of the usual container ship capacity passing through the Red Sea and Suez Canal was rerouted around the southern tip of Africa,” says Goker. “This rerouting added on average 10 days to normal delivery times.”

Lisa Osorio, chief strategy officer at Quloi, a cloud-based supply chain solutions provider, says rerouting from the Suez Canal has resulted in shipping costs increasing by as much as five times, impacting imported goods.

She also says this could add to inflation. “Research from Morgan Stanley estimated the disruptions could add 0.7 percentage points to global core goods inflation,” says Osorio. “Container ship operators are now having to use more vessels and incur related increased costs.”

Keep on truckin’

Trucking was hit especially hard by the Key Bridge collapse, as carriers struggled to get their loads to destinations on time.

“Though alternate East Coast ports have been able to absorb the diverted cargo volumes from Baltimore, the trucking sector has struggled to meet the new demands,” says Santoro. “Truck driver shortages have made it difficult to get diverted cargo loads to their now further-away destinations in a timely manner without losing money or passing on the added transit costs to customers.”

Heegan adds that on top of the impact on the trucking sector, it’s costing more to store goods at alternate ports.

“The more this particular sector is under strain, even as an end may be in sight, this would be where we could still see the most impact,” says Heegan.

“Though alternate East Coast ports have been able to absorb diverted cargo volumes from Baltimore, the trucking sector has struggled to meet the new demands.”

– Jena Santoro,
senior manager of global risk intelligence, Everstream Analytics

Positive outlook

Heegan, who grew up in the Baltimore area and is familiar with the local logistics industry, says things could have been a lot worse following the collapse of the Key Bridge.

Though he points out the event caused approximately 5,000 truckloads to be diverted each day, a significant impact on the local economy, larger supply chains have done their best to minimize the effect on their operations.

“It’s hurting the local communities that relied on that bridge for thousands of jobs and local commerce,” Heegan says of the loss of the Key Bridge. “For the larger supply chains, it absolutely could have been a lot worse. And let me be clear about this; even all of these weeks later, it’s still hard to predict with any high degree of confidence, so even what I say here today, could easily change tomorrow.”

Alternative modes of transportation have helped alleviate some of the backlog with the loss of the port, such as trains, planes, and trucks.

“But now, most of these other transport methods have maxed out and it’s very possible that, the longer this situation continues, the more we are going to witness more direct effects,” says Heegan.

The importance of preparation

There is often a silver lining with any challenging time, and with the Baltimore and Red Sea situations, logistics companies will not only adapt, but will implement a contingency plan for similar future events.

Today’s digital technology is helping companies wade through the complexities of geopolitical disruptions, as is artificial intelligence (AI).

“Those who have experience and the necessary capabilities have been deploying new digital platforms powered by artificial intelligence and machine learning,” says Goker. “This is giving them end-to-end supply chain visibility enabling real-time decision making to best address disruptions and unexpected contingences, while facilitating optimum collaboration between all stakeholders from manufacturers, shippers and suppliers to forwarders and logistics service providers.”

Ensuring collaboration between all stakeholders will be key to implementing a successful strategic plan, and, as Osorio underscores, embracing a real-time, digital freight-forwarding business model will be vital.

“From it, they gain supply-chain visibility for efficient, real-time order tracking, more expedient quoting capabilities and analytics that help improve their performance and customer relationships,” she says.

Heegan also cautions carriers and logistics companies when it comes to liability.

“Contracts between forwarders, cargo carriers, ports, and their customers are almost certainly going under the microscope after the incident in Baltimore,” he says. “Expect to see new verbiage in those agreements on liability and the limits of liability. It also means we could see higher insurance premiums as a result on a move forward basis, which could drive up the costs associated with cargo and shipping.”

Auto Shipments diverted from Baltimore

Like various other products that were heading through the Port of Baltimore, automotive shippers are now using alternative ports further south – Mercedes Benz and Stellantis to Georgia or further north and GM and Ford to Newark, N.J.

“Though the Sparrows Point terminal at Baltimore has remained open and accessible to deep-sea car carriers,” says Santoro, “its handling capacity is about 10,000 finished vehicles every two weeks, compared with normal monthly vehicle imports at Baltimore of between 60,000-70,000.”

Heegan again points out that the impact the Key Bridge collapse has had on the trucking industry is trickling down to the automotive sector.

“Much of the burden since the collapse has been placed on the trucking industry to shuffle these vehicles around this closure,” says Heegan. “We’re seeing this play out though with other product sectors too, but not on the scale as automotive. Construction materials, salt, coal, sugar, farm equipment, all of these are major sectors that move through Baltimore, but the strain there has largely been mitigated.”