What Extended Panama Canal Disruption Means for Retail Supply Chains

Date: Wednesday, August 30th, 2023
Source: Sourcing Journal

Restrictions limiting vessel flow through the Panama Canal will be in place for at least 10 more months.

Only 32 vessels are permitted to move through the critical passageway each day instead of the usual 34 to 36, according to the Panama Canal Authority (ACP), which is extending the restrictions through July instead of the original Sept. 2 end date. The news comes as the peak shipping season gets underway for U.S. retailers.

Monday morning saw 123 vessels queued at the Panama Canal, including 50 that booked a transit reservation and 73 waiting without an appointment. This is up from the usual 90 or so watercraft, the authority said.

However, 123 marks a decline from the 161 the authority reported on Aug. 10, suggesting improvements in cargo and commodity flow at the canal.

The waterway’s deputy administrator, Ilya Espino, has urged vessel owners to reserve slots ahead of time to avoid delays. Container ships get priority passage over dry bulk carriers carrying grain, coal and iron; liquefied petroleum gas (LPG) carriers; and other non-containerized vessels since they operate on more regular schedules.

Ships can’t exceed a depth of 44 feet because of the Panama Cana’s unusually low water levels. This means container ships, bulk carriers and tankers must ditch some cargo to meet depth requirements.

Wait times this month averaged 10.4 days for northbound craft and 9.3 for southbound, higher than the respective 6.6- and 5.6-day averages in July.

“So far, while general waiting times have increased, container ships have not been significantly impacted by the restrictions in the Panama Canal. Most ocean carriers have had to reduce the load on their ships, but so far that hasn’t had a significant effect on schedules and freight rates,” Jena Santoro, senior manager of supply chain risk at Everstream Analytics, told Sourcing Journal. “However, if container lines are forced to continue to load less containers, we could see issues for U.S. companies trying to replenish inventories ahead of the year-end holiday season, for everything from Christmas decorations to furniture and toys.”

Issues at the Panama Canal don’t seem to be affecting retail operations just yet, according to the National Retail Federation (NRF).

“NRF members have not indicated they have encountered significant delays due to the Panama Canal restrictions,” an NRF spokesperson told Sourcing Journal. “They continue to monitor the situation and work with their supply chain partners to address any issues that arise.”

Nate Herman, senior vice president of policy at the American Apparel & Footwear Association (AAFA), also noted that the collective’s members are closely watching the Panama Canal situation.

“The longer the water level concerns last, the more serious the impacts on our broader supply chains,” Herman said. “The Panama Canal is critical to the industry and the impact of climate change is clearly presenting itself in new ways, ensuring that businesses look closer at ways to mitigate both our environmental impacts and our operational risks.”

Everstream Analytics’ chief meteorologist Jon Davis expects the disruption won’t go away anytime soon because Lake Gatun, the water body that feeds the canal, is still far shallower than it should be.

The lake was 79.6 feet deep on Monday, below the 85.3 feet it averaged in August over the past five years. Davis doesn’t see any potential for near-term water level improvements because the drought is linked to El Niño, the climate pattern responsible for higher temperatures and less rain to the central and eastern Pacific Ocean.

Davis said El Niño should continue as an area of concern into 2024.

“The short-term forecast into early September looks problematic—a continuation of below normal rainfall across Panama and well above normal temperatures,” Davis said.

Many freight brokers advise clients who typically route cargo through the Panama Canal to use the Suez Canal instead. But there are other options, according to Glenn Koepke, general manager of network collaboration at FourKites.

For example, shippers could send cargo toward Chile’s Strait of Magellan or around the tip of South America, “but this will add significant transit days as well as operating expense for vessel operators,” Koepke said.

“The current approach for vessels that are too heavy is offloading the cargo and having it shipped via rail across Panama and then reloaded onto the vessel,” Koepke said.

Shippers could also use the West Coast ports, and then ship freight via truck or rail across the U.S., adding up to about two weeks to transit times.

 

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Date: Tuesday, September 29, 2020
Source: Supply Chain Brain

Come next summer, at a lithium-ion battery factory in Endicott, N.Y., thousands of rechargeable cells should start rolling off a production line. Run by Imperium3 New York LLC, a consortium of small companies, it will be the only new production facility of its type to open in 2021 in the U.S., delivering batteries to clients in defense, transportation, and other industries.

With an initial annual output of cells equal to 1 gigawatt-hour — enough to power about 19,000 electric vehicles at the current average pack size — the capacity at Endicott is a fraction of what global rivals will produce. China and Europe will respectively add about 40 and 19 times that volume next year, BlooombergNEF estimates.

For all it represents — energy efficiency, technological advancement, the future of manufacturing — the Imperium3 plant and its projected output also reflect that the U.S. is falling further behind in the battery race.

The global battery market to power EVs and consumer electronics and to store renewable energy on power grids will be worth about $116 billion a year by 2030, BloombergNEF forecasts, up from around $28 billion now. The U.S. is on course to capture only a small piece of that. “I’m dumbfounded,” says Frank Poullas, executive chairman of Magnis Energy Technologies Ltd., one of the Endicott factory’s owners. “There’s so much activity in Europe and in Asia, and then in the U.S. it’s almost nothing.”

American and German automakers dominated the 20th century, pioneering and continually improving the internal-combustion engine. Japan and China, which industrialized later, were left to play catch-up. But now Asia — led by China and South Korea — leads the way in developing cheap, powerful technology for the EV era.

U.S. industries will suffer if rising battery demand is met only by foreign companies, experts say, and job losses in the already shrinking auto sector will be even greater if cell production is concentrated overseas. “The U.S. could actually lose out on a lot of the economic opportunities, while Europe and Asia start to take control,” says David Deak, an operating partner in Azimuth Capital Management who’s focused on low-carbon energy investments.

There are national security implications, too, for the U.S. and others from a battery supply chain dominated by China, a nation capable of wielding exports as a political tool. By 2025, China will have battery facilities with maximum production capacity of about 1.1 terawatt-hours’ worth of cells a year, almost double the rest of the world combined.

The White House response has so far been inertia, a shift from the U.S. posture after the 2008-09 financial crisis, according to Cathy Zoi, chief executive officer of charging-network operator EVgo Services LLC. As an assistant secretary at the U.S. Department of Energy under President Obama, Zoi was among the officials who distributed public funds to build American battery factories for hybrid vehicles. Stimulating the sector again will help the U.S. auto industry, she says. “There’s a giant opportunity.”

German Chancellor Angela Merkel and other European leaders understand this, and the continent will lead the U.S. in manufacturing capacity beginning next year. The European Union will spend €500 billion ($590 billion), about a third of its seven-year budget, on green technology that’s likely to include batteries.

What’s not clear is whether European battery production will come mainly from satellite factories run by established Asian giants or from homegrown European players.

“Considering the battery represents 40% of the value of an electric car, the difference between those two scenarios is huge,” says Peter Carlsson, CEO of Northvolt AB, which is building a production facility in northern Sweden and planning a second with Volkswagen AG in Germany. Founded by two former Tesla Inc. executives, the company will likely benefit from Europe’s green push. It raised $1.6 billion in debt in July and received $525 million in loan guarantees from Germany in August.

As they build out electric assembly lines, the continent’s automakers want suppliers close by, to prevent disruption, Carlsson says, and “from a political perspective, to secure the jobs of the future.” That’s a reaction to moves by several battery suppliers, including China’s Contemporary Amperex Technology Co., which is building its first overseas plant in Germany.

Chairman Zeng Yuqun says CATL is eyeing expansion in the U.S., but its less-developed network of suppliers is an obstacle. That hasn’t stopped its South Korean rivals: LG Chem is adding capacity in Ohio, and SK Innovation Co., which is also building in Hungary, expects a plant in Commerce, Ga., to begin production in early 2022.

China’s grip extends to almost every component within the battery: It accounts for about 80% of the chemical refining that converts lithium, cobalt, and other raw materials into ingredients, according to Benchmark Mineral Intelligence, an industry adviser. “Other nations, especially China, are consolidating control of the supply chains for the minerals that form the foundation of modern society,” says Senator Lisa Murkowski, the Alaska Republican who chairs the Committee on Energy and Natural Resources. “By ceding that control, we are losing out on jobs and growth. That will only worsen as emerging industries like advanced batteries and electric vehicles take hold.”

Some alliances are being formed to help push China back. Automakers including General Motors Co. and PSA Group have entered into battery-producing joint ventures with vendors from South Korea and Europe. Still, Volkswagen, Daimler AG, and other brands are investing directly in China’s manufacturers to guarantee future supplies.

A degree of caution in the U.S. is understandable. EV adoption is happening at a slower rate — European EV sales have substantially exceeded those of the U.S. in all but two quarters in the past four years. With the pandemic slowing global auto purchases, battery sales are forecast to drop for the first time in three decades. Stimulus programs elsewhere aim to support the rollout of EVs. There’s no such move from the U.S. government, though Democratic presidential nominee Joe Biden has indicated the sector could get a boost if he’s elected.

Some are optimistic that the U.S. eventually will catch up. Incentives to foster local production of components like battery electrodes would spur investment in everything from mines to complex manufacturing, Azimuth’s Deak says. And growing EV production will ultimately require regional supply chains.

“The same thing will happen in the U.S.,” Deak says. “It’ll just take longer and happen a little slower.”

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