Rising shipping costs and delays in getting product imported are two supply chain challenges some promotional products suppliers say they’re experiencing as a result of disruption at the Suez Canal and Panama Canal – both key global trade passages.

A persistent drought has reduced the flow of ships through the Panama Canal. Meanwhile, Iran-backed Houthi militants based in Yemen are attacking commercial vessels as they pass through the Red Sea to the Suez Canal in Egypt, compelling shippers like Maersk to abandon the route in favor of sending cargo-carrying ships around the southern tip of Africa – a lengthier journey.

Longer Transit

One consequence of the canal consternation is that it’s taking longer for U.S.-based importers to get product made in Asia – where the vast majority of the North American promo industry’s goods are manufactured – landed on these shores. The delays are not dramatic, but they are something for which promo suppliers are having to account in their logistical planning.

“On shipments that normally pass through the Suez, for instance, we have seen transit times extend by up to eight days as our core providers are taking other routes,” said John Janson, vice president of global logistics at Top 40 supplier SanMar (asi/84863). “In addition, we have seen minor delays at origin as the carriers are adapting vessel sailings to deal with the Red Sea challenges.”

Some are experiencing longer delays. “We’re hearing delays in freight times of two weeks,” said Jeffrey Nanus, CEO of New Jersey-based eco-friendly hard goods supplier AAA Innovations (asi/30023).

Our satellite data shows a sustained & substantial decline in #shipping #SuezCanal transits via the #RedSea

Especially #container & #car carriers are hard hit with transits approximately 50% & 77% lower y/y, respectively. #Oil tankers, #LPG & #LNG carriers also down y/y pic.twitter.com/QLGA9e8qaa

— Joakim Hannisdahl (@JHannisdahl) January 5, 2024

Rising Costs

As ocean transit takes longer and becomes riskier, the costs of getting cargo from Asia to North America – and elsewhere, like Europe – becomes more expensive for shipping providers.

“Any actions taken to deal with this situation will result in more costs – higher maritime insurance, labor cost for the crew to go a longer route, and fuel costs for ships to take different/longer routes,” said Teresa Fang, Counselor’s 2023 International Person of the Year and vice president of supply chain at Top 40 supplier alphabroder (asi/34063).

As carriers incur higher costs, the price of moving freight from one side of the world to the other stands to rise for exporters and importers that rely on those carriers, including promo suppliers. As the Suez Canal situation has deteriorated in the lead up to China’s Lunar New Year, a period during which shipping demand is annually heavy anyway, the costs suppliers are being quoted from shippers is going up.

“We’re already seeing a $1,000 increase on average per cargo container, and I expect that rate to continue to increase through the end of the month,” said Jing Rong, vice president of supply chain and sustainability at Top 40 supplier HPG (asi/61966). “How much they will climb I’m not sure.”

Nanus has heard container rates for U.S.-bound cargo from Asia to the East Coast could rise into the $10,000 to $12,000 range; that’d be up, he said, from recent rates of $2,200 that his firm paid. Freightos, a logistics provider, noted that the average cost to ship a common 40-foot container from Shanghai to New York increased from $3,500 in the middle of December to nearly $5,000 the first week of January.

Yuhling Lu, co-owner of Top 40 supplier Ariel Premium Supply (asi/36730), was hopeful that the recent slowdown in China's manufacturing activity may help mitigate some of the price escalation. Still, rates were well on the rise already. "Our freight forwarder just hiked the container shipping cost by about 50%," Lu told ASI Media.  

42%
Approximate increase in the cost of a 40-foot cargo container bound from Shanghai to New York between mid-December and the first week of January.

Butterfly Effects

While the Suez and Panama disruptions most directly impact East Coast-bound cargo, there are potential butterfly effects, executives said.

Such as: The cost of shipping to the West Coast could rise too as carriers pull vessels from Trans-Pacific routes and add them to Asia-Europe strings to compensate for the decrease in available capacity that will result from extended transit times associated with avoiding the Suez Canal and going around Africa, Rong explained.

Container shortages – a big challenge and sourcing/product cost accelerant during the pandemic-era supply chain crisis – are a potential consequence too. So are higher raw material costs and delays in getting materials, said Rong.  

“If both situations continue at the canals, there certainly could be longer-term impacts,” said Janson.

“Product prices should not increase for distributors unless the situation in the Middle East continues through Q2” Jing Rong, HPG

Sustainability Initiatives Could Take A Hit

In recent years, promo suppliers have striven to lessen the environmental impacts of their operations. Often, such efforts have included reducing carbon footprint.

Now, however, with longer routes needed to get imported goods stateside due to the canal disruption, more fossil fuel will inevitably be burned. That, according to some, has the potential to affect suppliers’ ability to achieve sustainability goals if the longer routes last for an extended period of time.

“There could be an environmental impact of this re-routing and potentially hinder our sustainability efforts in this area,” said Rong. “The journey around the Cape of Good Hope from Asia to the U.S. East Coast is about 25% longer than if a vessel were to transit the Suez Canal. It equates to about seven to 10 extra days of transit time, which is seven to 10 days more of fuel that vessels are forced to use.”

Will There Be Pangs For Distributors?

During promo’s COVID-era supply chain crisis, exponentially elevated shipping costs, cargo container shortages, and delays in getting products manufactured and imported were key factors in marketplace pangs distributors and their end-customers felt – namely, inventory shortages and higher promo product prices.

As of now, no suppliers ASI Media spoke with anticipate inventory shortfalls, though they noted that for suppliers who aren’t as proactive about sourcing, there’s the potential for issues – especially since the canal issues are occurring in the lead up to the annual factory production pause that comes with Lunar New Year in China (Feb. 10 to Feb. 24). Still the general sentiment was that, industrywide, supplier stock levels should remain in good shape given the current outlook. That’s good news for distributors.

“We currently do not anticipate any inventory shortages, but recognize how connected global supply chains are, so continue to monitor the situation closely,” said Pat Noonan, SanMar’s chief product officer.

Some supplier executives said that if container rates/transport costs spike substantially as some fear, then it’s quite possible that suppliers will have to hike the prices they charge distributors for products as a result. Still, others said that’s not yet a given.

“Prices should not increase for distributors unless the situation in the Middle East continues through Q2,” said Rong. Fang expressed a similar sentiment: “A lot will be determined by the length of the conflict.”

Just as they did during the industry’s early 2020s supply chain fiasco, top suppliers plan to remain nimble and adapt.

“We’re proactively partnering with our suppliers, carriers and internal teams to strategically plan for the immediate and long-term impact these global events will have on our business,” said Kimberly Smith, alphabroder’s director of logistics. “Through open dialogue, leveraging the strengths of knowledgeable supply chain professionals, and innovative ideas, we will traverse the challenges ahead of us.”