Worsening drought at the Panama Canal and war in the Middle East are complicating importing to the East Coast for North America-based promotional products suppliers.

While the sourcing picture has darkened in recent days, suppliers ASI Media spoke with said they’re adapting as necessary and, so far, continue to be able to land product stateside and get it stocked efficiently, thereby keeping inventory levels healthy.

Still, they’re monitoring the potential for deteriorating conditions at the Panama Canal and Suez Canal to cause delays importing product from China/East Asia to the East Coast, sourcing price increases, and even congestion at West Coast ports. Most products sold in the North American promo industry are made in China/East Asia.

“The situation is definitely becoming a bigger concern,” said Jing Rong, vice president of supply chain and sustainability at Massachusetts-headquartered Top 40 supplier HPG (asi/61966).

Obstacles at the Canals

For months now, a severe El Nino weather pattern has caused drought that’s led to low water levels at the Panama Canal, a critical hub on global supply chain routes that enables ships to pass from the Pacific Ocean into the Atlantic Ocean – and vice versa. Generally, the canal allows for the most efficient and cost-effective importing of products from China/East Asia to U.S. East Coast and Gulf Coast ports.

As the drought has worsened, the Panama Canal Authority has reduced the number of ships it allows to pass through the canal daily, from a norm of about 35 to 22. By February, if poor conditions persist, only 18 will be permitted passage each day.

This is how the Panama Canal works 🚢 pic.twitter.com/69OYWksuWA

— Learn Something (@cooltechtipz) August 18, 2023

Some importers and shipping providers have responded, in part, by re-routing U.S. East Coast-bound vessels through the Suez Canal – an artificial sea-level waterway that connects the Red Sea to the Mediterranean Sea and ultimately the Atlantic Ocean.

Rong noted that, last week, a key alliance of shippers announced what she described as a “major shift” for certain U.S. East Coast and Gulf Coast-bound vessel routes from the Panama to the Suez. “Transit time is expected to increase by seven to 10 days,” Rong related.

The route change itself isn’t a huge deal, she and other promo importers told ASI Media, but the Suez route has become more perilous due to the war between Israel and Hamas.

In support of Hamas, the Houthi, a Yemen-based, Iran-backed group of militants, has admitted to targeting Israeli or Israeli-connected commercial ships passing through the Red Sea. Things escalated this week when the Houthi missile-attacked a Norwegian oil tanker that had no connection to Israel.

“The Panama Canal is a mess and now the Suez is a mess with drones and bombs targeting ships,” said Jeffrey Nanus, president of New Jersey-based eco-friendly hard goods supplier AAA Innovations (asi/30023).

Promo Concerns

Due to the Panama Canal drought and the unrest near the Suez Canal, importers/shippers could send more vessels traveling from East Asia to the U.S. East and Gulf coasts around the southern tip of Africa – but that’s a costlier and longer route. “It could add two more weeks to transit and increase freight cost,” noted Rong.

If shippers stick with the Suez or Panama, costs still have the potential to escalate.

“We could see some additional surcharges due to the conditions in the two major canals,” shared Carrie Messer, director of global logistics at Florida-based Top 40 supplier Koozie Group (asi/40480). “War-risk surcharges as well as low-water surcharges have been used in the past and could be re-instituted again. We have not heard of any specific numbers from the carriers, but the longer these conditions continue the more likely we will see these charges instituted.”

Another option is to route East/Gulf Coast-bound freight to West Coast ports. While certainly viable, that would typically take longer than going through the Panama Canal under normal conditions and cost more while necessitating the clearing of additional logistical hurdles, as product would have to be moved over land from the Pacific to Eastern warehouses by truck or rail.

Another factor in play is that the contract for dockworkers on the U.S. East Coast/Gulf Coast expires next year and the union laborers have threatened to strike if they don’t get a favorable deal by the time it ends Sept. 30, 2024. Even the specter of work slowdowns or a strike could compel shippers to divert at least some East Coast/Gulf Coast shipments to West Coast ports – a phenomenon that happened in reverse in recent years when West Coast dockworkers were in a contentious battle for a new contract.

“The labor uncertainty on the East Coast/Gulf Coast, coupled with the Panama Canal situation, will cause many larger importers to route more cargo through the West Coast of the U.S. and Canada,” Messer told ASI Media. “This may increase congestion at those ports and put pressure on the space available during parts of 2024. This could cause longer transit times from all parts of Asia.”

Industry Importers Adapting

While challenges and concerns are in play, suppliers emphasized that, to date, the impacts on their ability to import product efficiently have been minimal.

“For the most part, there has been little effect on our inbound freight, but we have seen some minor delays,” said Frank Carpenito, president/CEO of Top 40 supplier Gemline (asi/56070) and a member of Counselor’s Power 50 list of promo’s most influential people.

The experience has been essentially the same for HPG, Koozie Group and AAA Innovations.

“So far, vessels have been making it through the canals,” Nanus told ASI Media. Added Koozie Group’s Messer: “The effect has been minimal on our Florida-bound shipments.”

To account for potential delays, suppliers are implementing a tactic utilized during importing challenges experienced in the industry’s COVID-era supply chain crisis: Advance ordering.

“Since in the short term we anticipate there could be some extended transit days, we’re planning extra lead time to avoid impacts to our inventory and service levels,” said Carpenito.

AAA Innovations is undertaking such proactive importing as well. Nanus encouraged other suppliers to do so too, especially if conditions at the Panama and Suez canals worsen and the need to move East Coast-bound shipments around Africa or to the West Coast becomes more widespread. “There could be delays in getting inventory for suppliers that don’t plan early enough,” he said.