Factors that disrupted the global supply chain in 2023

The global supply chain faced some serious setbacks that interfered with the movement of goods from countries of origin to their destination countries in 2023.

These factors include issues such as the recent attack on ships at the Red Sea by Houthi militants in Yemen and the restriction of ship capacity at the Panama Canal due to the reduction in water level.

In Nigeria, for instance, issues such as petrol subsidy removal, and high energy costs gave a huge blow to the supply chain industry in the period under review.

The removal of the petrol subsidy increased the petrol pump price from N195/litre during the subsidy era to N565/litre and as much as N637/litre depending on the state and this impacted negatively on the cost of passenger transport.

Also, the high energy costs were obvious in the cost of diesel as the pump price jumped to N1,300/ litre in 2023. This raised haulage cost of a 40-foot container from Lagos to Onitsha or Nnewi in the East to N1.8 million while a 20-foot container from Lagos to a warehouse in Onitsha or Nnewi was moved for N800,000.

Also, the cost of taking a 40-foot container from Lagos to Abuja grew to N1.6 million; a 20-foot container from Lagos to a warehouse in the north hit N800,000; a 40-foot container from Lagos to Kano costs went up to N2.4 million while a 20-foot container from Lagos to Kano cost as much as N1 million.

Attack at the Red Sea

Shipping companies have been forced to divert about $80 billion worth of cargo away from the Red Sea due to the threat of attacks from Houthi militants in Yemen.

The total container capacity of these vessels is 700,000 twenty-foot equivalent units (TEUs.), Paolo Montrone, senior vice president and global head of trade sea logistics at Kuehne+Nagel, told CNBC.

Redirecting ships around the Cape of Good Hope at the southern tip of Africa adds about 10–14 days to a journey that would normally take about 27 days from China to northern Europe.

This development forced shipping companies to impose extra charges to cover the cost of re-routing ships in response to attacks on vessels in the Red Sea.

Maersk, CMA CGM and Hapag-Lloyd said the surcharges will cover longer voyages around Africa compared with routes via the Suez Canal, and this is already adding to rising costs for sea transport.

For instance, Maersk said a standard 20-foot container travelling from China to Northern Europe now faced total extra charges of $700, consisting of a $200 tax deducted at source (TDS) and a $500 peak season surcharge (PSS).

Also, containers bound for the east coast of North America will be charged $500 each, consisting of the $200 TDS payment and a $300 PSS.

Panama Canal

Earlier in September 2023, ships especially container carriers sailing from Asia to the United States and Gulf Coast ports via the Panama Canal faced restrictions due to low rainfall that limits the depth of the canal.

The Panama Canal severely restricted transit capacity to conserve water and the supply chain industry felt and is still feeling the effects with different vessel types facing different fallout.

Richarte Vasquez, administrator of the Panama Canal Authority disclosed on Sept. 12 during a press conference that each transit of the Panama Canal consumes a large amount of water, regardless of ship size.

“If it doesn’t rain enough, the canal must either limit transits or reduce ship draft,” said Vasquez.

Around 70 percent of vessels using the Panama Canal require a draft of 44 feet, which is the current limit, down from 50 feet at the beginning of this year. If the draft is lowered further, most ships won’t be able to transit with full loads.

The Authority had previously reduced daily transit reservation slots from 36 to 32. It recently announced that reservation slots will be limited to 25 starting Nov. 8 and 22 on Dec. 1. The number of reservation slots will fall to 20 on Jan. 1, 2024, then 18 starting Feb. 1.