By Glenn Riggs, Chief Strategy Officer of Odyssey Logistics
The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
The continued fragility of the post-pandemic supply chain has been brought into high relief by recent disruptions. Perhaps most prominent in the public imagination: Houthi attacks on merchant ships in the Red Sea have led to the diversion of over $80 billion in cargo, leading to massive logistics efforts to have that cargo still arrive at its intended destination within a reasonable time frame.
Adding to the complexity: Events like these never occur in isolation. The supply chain is a dynamic and intimately interconnected global apparatus. Touch a thread in one corner of the globe, and you will feel tremors in the opposite corner.
This interconnectedness makes forecasting extremely valuable — but also extremely difficult. How can anyone predict events that are so tightly bound up in others? As such, what follows is not a pure forecast, per se, but rather a set of possibilities — some of the most critical supply chain risks that companies are likely to face in 2024, as well as some strategies to make your logistics operation more resilient to these risks.
Houthis on the move
The Houthis will likely continue to be a thorn in the side of shippers in 2024. Emboldened by the conflict between Israel and the Palestinians, the Houthi authorities, a rebel group in Yemen suspected to be funded by Iran, began a series of raids last year against cargo ships in the Red Sea west of Sanaa. The resultant chaos has caused understandable skittishness for those accessing through the Suez Canal, causing laborious rerouting around the Cape of Good Hope in many cases. Downstream of this disruption aren’t merely delays, but surges in goods inflation (with some estimates saying up to 2% increases could be attributed to the raids).
Attacks by the U.S. and the U.K. on the Houthis have shown little sign of curbing the piracy, and so supply chain pros would do well to continue to keep a close eye on the Red Sea and all the effects spinning out from the instability there.
Lunar New Year
The Lunar New Year, also called the Chinese New Year, is a reliable but still remarkable source of supply chain disruption each year. While of course every country has unique slowdowns related to various cultural practices and values, China’s outsize importance in the global economy takes the Lunar New Year beyond the scope of a typical holiday slowdown.
The seven-day holiday results in massive migration, as well as a total halt to factory and production work in China as workers go on holiday and spend time with family. Often, the festivities can extend well beyond the typical seven days, and production and shipping can be disrupted for several weeks, causing a rush of goods before and after.
Panama Canal drought
Seasonal droughts are not new for the Panama Canal. But extreme drought has made their severity unpredictable. In January, authorities reported that a recent historic drought had forced them to slash traffic by a third, with Panama Canal Administrator Ricaurte Vásquez saying the drought could cost Panama as much as $700 million in 2024. That figure has worsened considerably over time, with previous estimates running closer to $200 million.
With routing problems such as those at the Red Sea already straining the supply chain, the disruptions at the Panama Canal could not have come at a worse time, compromising the two most important canals in world trade. And, as the problem implicates broader climatological problems, an easy solution seems nowhere in reach.
Impending ILA strike
Labor issues will continue to affect the supply chain in 2024. Most pressingly, the U.S.’s International Longshoremen’s Association (ILA), which represents over 70,000 dockworkers’ interests across the East Coast and all the way to Houston, has made it clear that they intend to strike in 2024 if concerns they have raised with the United States Maritime Alliance (USMX) go unremediated. Their grievances largely pertain to pay issues as well as automation concerns. Their president, Ray Daggett, has indicated that members should prepare for a strike this fall.
Of course, it’s possible that USMX and ILA will come to an agreement, but currently this doesn’t seem likely, with both sides digging in and Daggett preparing his members for action long in advance. Not helping matters is that the strike is planned to occur shortly before the U.S. presidential election, which itself may contribute to further supply chain instability.
The election and other geopolitical risks
The election itself, which will doubtless be hotly contested and controversial, could trigger serious global repercussions, which themselves could trigger supply chain disruptions. And this is only one of many geopolitical powder kegs. Others include the China-Taiwan situation, the ongoing conflict in Ukraine and the Israel-Palestinian conflict. All of these are volatile political situations in which many global players are either implicitly or explicitly bound up. Should any spiral out of control, it could trigger massive logistics disruptions. Not to mention the annual weather cycles and impacts of hurricane season and extreme weather events.
What’s to be done?
In surveying the supply chain landscape in 2024, I’m reminded of a passage from Homer’s “Odyssey.” Odysseus has to choose to chart his ship between two great perils — the whirlpool monster Charbydis and the many-headed sea monster Scylla. No matter what he does, he’s going to lose something. A similar “damned-no-matter-what-you-do” feeling seems to be on the horizon for many of my colleagues. But I think clinging to a basic set of best practices can help mitigate the worst of the headaches and hopefully insulate professionals from the more severe setbacks.
The first and most obvious strategy is to spend even more time than usual preparing alternate sources of supply and alternate transport routing possibilities. The best supply chains are those built on options, and having only one way to get your freight from A to B, in 2024’s climate of route closures and ricochet effects, is a recipe for unmitigated disaster. Make sure your contingency plan has a contingency plan.
It’s also more important than ever to have a clear priority structure for your freight. You have to have a hierarchy of what you’re shipping, and know what you’re willing to pay a premium on and what can afford to sit a little longer in logistics limbo. Obviously, nobody likes the idea of having to set priorities like this — but doing so on the front end of your shipping efforts will ensure that you aren’t scrambling to invent them when disruptions inevitably hit.
My last piece of advice: Diversify your partners and your shipping options. Risk is best handled when it’s distributed, preferably across the wide network of a built-out 3PL or 4PL partner. The volatility of 2024 means it’s not the time to rely on a unimodal solution. You need to build as many options for yourself as possible so that when disruption strikes, you can hop your freight nimbly to the next best bet. Good 3PL partners can take care of these headaches for you and usually have already built out a strong carrier infrastructure. I’ll say it again: The strongest supply chain is one built on options — a rope is stronger than a single thread.
Weathering 2024
2024 looks like it will be another rough year for the supply chain, and with so many possible risks and disruptions, it will be interesting to come up for air at the end of the year and see what companies weathered the storm best. I have a feeling those that will thrive didn’t put all their eggs in one basket. Risk is proliferating, and so should your strategies to circumvent it.