Navigating Troubled Waters: Unseen Threats to Global Supply Chains
How Houthi Attacks and a Drying Panama Canal Could Disrupt Global Trade and Impact National Security
A supply chain crunch is on the horizon.
During the early days of the COVID pandemic, the norms of supply and demand were turned on their head. Demand evaporated in some categories and skyrocketed in others (toilet paper, Lysol wipes, etc).
Off-shored manufacturing, factory closures due to illness, port closures and backlogs, and just-in-time logistics all conspired to demonstrate how fragile our supply chains were.
US businesses and the government responded--or so it seemed. Businesses claimed to invest in nearshoring manufacturing.
In reality, few actually did.
Instead, they relied on increasing inventory. The government established a Supply Chain Disruption Task Force to study and address short-term supply chain discontinuities. Admittedly, we've seen some progress in terms of investment in new plants and production facilities, which surged almost 63% in 2023--in part due to federal incentives.
Unfortunately, analysts don't expect this pace of investment to continue.
And that's unfortunate. Because we’re in for another round of supply chain strains and increased prices.
The Unseen Threat in the Red Sea
Most people are aware of the increased Houthi attacks on shipping in the Red Sea, particularly at the strategic choke point of the Bab-al-Mandab strait. Many shipping companies, such as Maersk, have announced that due to the Houthi attacks, they will suspend shipping through the Red Sea. Instead, these ships will now have to round the Cape of Good Hope, the southernmost point of the African continent. This detour adds around 10 days to a ship's journey, making it around 25% longer and requires considerably more fuel. This leads to delays, increased costs, greater vulnerability, and reliance on already overwhelmed African ports.
While these spectacular attacks have garnered plenty of attention in the press--and for good cause--another disruption is happening on the opposite side of the world, with potentially greater impact for the United States.
The Silent Crisis in the Panama Canal
The Panama Canal, built and once controlled by the United States, is drying up.
The Panama Canal is critical to US interests as it controls the flow of sea-based traffic from the United States' west coast to Europe, the United States' east coast to Asia, and our ability to rapidly shift naval forces between the Pacific and Atlantic oceans.
Poor operational management of the reservoirs that feed the canal, increased maritime traffic, climate change, and the current El Nino weather phenomenon have resulted in dangerously low water levels in Lakes Gatun and Alajuela. These lakes pump the water into the canal that is used to raise the ships between the various locks. Unfortunately, the design of the canal doesn't allow for any recirculation of the water, and it's instead dumped into the ocean.
As a result, the canal is having to throttle the maritime traffic and shipping companies are again choosing a longer and far more dangerous route through the Drake Passage around South America's Cape Horn. The Drake Passage is generally considered the most terrifying and dangerous ocean crossing, notorious for storms, high winds, and rough seas. (There is also the option of taking the Magellan Strait, but there size limitations and also requires additional pilots and fees, so I'm considering it equivalent to the Drake Passage in terms of impact on shipping).
Sailing around South America can also add up to 22 days of transit time for a ship.
Consequences for the Everyday American
The impact of these two maritime, strategic chokepoints closing will be large. Every day Americans will feel this in their daily lives as prices rise and supplies are interrupted. Further, this presents a strategic risk to our national security, challenging the ease of naval movements and impacting the agility of military deployments between the Pacific and Atlantic Oceans on one side, and the Indian and Atlantic Oceans on the other.
Conclusion
As we brace for the impact of these unseen threats, the convergence of Houthi attacks and the drying of the Panama Canal emphasizes the urgent need for proactive measures.
Beyond the immediate economic implications, these disruptions unveil strategic vulnerabilities that demand a comprehensive and coordinated response, emphasizing the critical importance of safeguarding key maritime passages for the stability of our interconnected world, the need to continue to re-shore manufacturing, broaden our industrial base to include non-traditional manufacturers, and invest in critical technologies to mitigate future anthropogenic climate impact.
Keep building,
Andrew
This is part of a larger series of concerning strengthening our Defense Industrial Base. Read more at:
