The headline in this week’s Wall Street Journalwas striking: “Two Canals, Two Big Problems – One Global Shipping Mess.”
Houthi attacks in the Red Seahave disrupted global trade in the Suez Canal. Meanwhile, drought at the Panama Canal is a separate gut punch to the economy.
“I think in Idaho, what we're going to see, the impact is not so much on food and agriculture, but it's going to be retail goods,” said Dr. Jim Kroes, professor in the Information, Technology and Supply Chain Management Department at Boise State University. ”With almost more than doubling the rates of shipping goods… that is going to directly impact those types of goods … into Idaho.”
As part of an ongoing conversation regarding the ever-growing importance of supply chains, Kroes visited with Morning Edition host George Prentice to talk about how crises half-a-world-away continue to impact the Gem State.
Read the full transcript below:
GEORGE PRENTICE: It's Morning Edition. Good morning, I'm George Prentice. To be sure, the escalation of violence in the Middle East affects everyone, as does drought…but possibly even more than many of us may think, right down to the level of being a consumer. We're going to spend some time this morning considering how the Houthi militant attacks on commercial vessels are impacting companies across the planet, and how drought near the Panama Canal is impacting so many shipping lanes. So, to help us through this, here comes Dr. James Kroes, a professor in the Information Technology and Supply Chain Management department at Boise State. Dr. Kroes, welcome back to the program.
DR. JIM KROES: Thanks for having me, George. It's nice to talk to you again.
PRENTICE: Can you remind us of how sensitive these shipping lanes are?
KROES: Yes. For sure. So even before the Houthi attacks began on shipping, the global containerized ocean shipping supply chain was pretty stressed because of some issues in the Panama Canal. The Panama Canal to work needs fresh water from Gatun Lake, which was created when they built the canal. Because the vessels that transit the canal get lifted up, move across Panama and then lower down as they go from ocean to ocean. And that lake is at its lowest level since 1965. And that lake water is. There's just not enough water to support the normal volume of traffic across Panama. The lake also supplies half the fresh water for Panama, so that has caused the Panama Canal to reduce transits from about 38 a day down to 24. So that has led to reduced capacity as well as longer waiting times to get through the canal. So ships now are waiting up to 20 days to transit the canal, and instead of waiting, they have two options. They can either go around South America, but what's happened more frequently was instead of going from Asia through the Panama Canal to get to the East coast, they're going from Asia westward, through the Red Sea, through the Suez Canal to get to the east coast of the United States.
PRENTICE: And then it's just a series of dominoes, right? Because whether they're backed up, I'm going to assume that there's cost with that. But if they reroute, they have to refuel… let alone the fact that they're adding on all these extra days for shipping.
KROES: Correct. It's really the extra time. So even going through the Suez Canal adds about a week of transit time. But now with the Houthi attacks, most of the ocean carriers have rerouted their vessels around Africa, which adds another 10 to 11 days of transit time. So, what that does is… it reduces capacity because to maintain the same service levels, the ocean carriers need more vessels to serve the ports at the same frequency. So, it reduces capacity. And that has directly led to a spike in the spot rates for containerized shipping in December beginning of December, to ship a 40-foot container from Shanghai to New York, it was about 2000 $2,500, and now that's over $6,000.
PRENTICE:. And that has to trickle down then to what we're going to be shelling out of our wallets.
KROES: Absolutely. It's a direct cost that gets passed on to consumers once those goods get into the US supply chain.
PRENTICE: Dr. Kroes, just before we went on air, you were sharing with me that you recently had a visit from a former student that has first person knowledge about all of this.
KROES. Ocean Network Express is the sixth largest containerized shipping company in the world. They're a Japanese owned company, but their West coast United States office is actually in Meridian. And they hired a, you know, a number of our supply chain students over the last few years. And one of my former students came back to talk to my logistics class of undergraduate students, um, last week. And, you know, this is, you know, front and center of what that company is facing right now is, you know, how can they maintain the schedules and service that we need to support our supply chain with this, you know, reduction in basically capacity and these added delays.
PRENTICE: I have seen headlines of Tesla and Volvo pausing production… and Ikea saying that there will be disruptions that could lead to delays. But there was a piece of news on the BBC this morning that I thought really hit home. And that was their one of their major grocery chains - Sainsbury's has signs on their shelves that say there could be a problem with availability of black tea. And that's a little bit like telling someone in Idaho that there are no potatoes.
KROES: Correct, correct. And I think in Idaho, what we're going to see, the impact is not so much on food and agriculture, but it's going to be retail goods….consumer goods that are produced in Asia. Electronics, those types of things. We're going to see delays. We're probably going to see some price increases on those goods. Just with the almost more than doubling of the rates of shipping goods… that is going to directly impact those types of goods that we import from Asia into Idaho.
PRENTICE: And then there are the materials. We heard earlier today about citric acid, a lot of which is made in China and India that normally ships through the Red Sea, and that is used in things like Vitamin Water and Gatorade or chemicals that we use to make cleaning supplies. I mean, all these dots connect.
KROES: One thing that people tend to llose sight of, sometimes is that supply chains are global and…. something that happens across world has a direct impact on us. Through that series of linkages between the consumer and where things are produced. So even if a good is produced in the United States, if the raw materials are coming from somewhere that require containerized shipping, they're going to be delayed and their costs are going to go up.
PRENTICE: Dr. Kroes, this is a fascinating time for you and your students in that you could rip something literally off any day's front page as a as a model or as an experiment that trigger conversation. You came out of the pandemic when all of a sudden all of us were talking about supply chains, and now here we have drought near the Panama Canal and terrorism at Suez Canal. And here you are again. And what an interesting time to be in your class.
KROES: It is. It is one encouraging thing is the job market is really good for my undergraduates. People understand the importance of supply chain. Finally. And, you know, there's huge demand especially, you know, right here in the Valley with everything happening with, you know, cron's expansion, there's going to be a huge need for students with our skill sets. They can look at these real-world problems and come up with solutions.
PRENTICE: You must when you go shopping, you must look through a very unique lens, right? When you're looking at shelves and availability of products.
KROES: I do, and inventory management is a huge part of our curriculum. So, when I go to, you know, any kind of retail store, I start looking around, you know, at how much stuff is on the shelves and what's missing. And, you know, start thinking about what could be causing those types of issues.
PRENTICE: I want to cycle back to something you said earlier, that we may not necessarily see a direct or immediate impact on food products, but more on manufactured goods, where if we're not seeing that now, we'll see it soon.
KROES: Yeah, there's a lot of stress on the system right now. And over the next few months, especially with the uncertainty, you know, around what's going on in the Red Sea. There's a little bit of good news, though. Um, container shipping capacity is expected to grow about 10% worldwide this year. There are a bunch of new vessels that are coming online, and they were intended to replace older vessels that, you know, that were scheduled to be retired. But I imagine the ocean carriers are going to keep those older vessels in service just to have a little bit more capacity over the next year until we figure out, you know, how things are going to settle out with all these various crises impacting us.
PRENTICE: Dr. Kroes, could you give us an example or two of something that might, uh, that might peak or spike?
KROES: So, I think probably a lot of the retail consumer goods that, you know, we use during the summer are probably on their way or close to being on their way, you know, from manufacturers overseas. So, we're probably going to see increased prices and, you know, maybe some, uh, low inventory and some stock outs for some of the things we use over the summer, you know, patio furniture, recreational goods, those types of things.
PRENTICE: Gardening tools, things like that? All the things that we don't see on the shelves yet, but we're going to desperately want in 60 days?
KROES: Because the shipments for those start months in advance. So, they should be in the supply chain now, moving our way. And if there's delays, that's going to delay them getting onto our store shelves. You know, once the weather turns nice and we want to start doing things that requires those goods.
PRENTICE: I am fascinated by what you do and the fact that your students indeed have increased job security with every day because we need this expertise.
KROES: It absolutely is. I love teaching supply chain. And, you know, the one message I always give my students is, you know, if you want a consistent job where you know exactly what you're going to do, there's other fields that you can get into in business. But if you want a challenge that's different every day and requires you to solve a new problem every day, supply chain management is just a great opportunity for that kind of exciting career.
PRENTICE: We are lucky that you are here with us as well. And he is Dr. James Kroes, a professor in the Information Technology and Supply Chain Management Department at Boise State. Jim, thank you so very much for your time, this day and for all of our visits. We look forward to the next one.
KROES: Thank you, George. Thanks for having me. It's always a pleasure to speak with you.
Find reporter George Prentice@georgepren
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