The onslaught of climate-related logistics
disruptions the industry has faced
over the last year could become the new normal as the effects intensify across the globe, according to consulting firm Kearney’s 2024 “State of Logistics” report.
Climate change has consistently functioned as an “external agent of instability,” the report notes. The effects were seen firsthand when drought conditions at the Panama Canal cut crossings down by a third of their normal level, late in 2023. That contributed to a tripling of the Baltic Dry Index in 2023, an industry bellwether that tracks shipping and freight costs for dry bulk goods such as coal and grain. And, given that 90% of all traded goods are moved by sea, that always brings an added exposure to climate-related disruptions such as tropical storms, flooding, droughts and rises in sea level.
Read More: Record Hurricane Season in Atlantic Could Spell Trouble for Supply Chains
The climate-driven turmoil we’ve seen so far is “only the beginning,” the report further warns.
The authors estimate that sea level rise and inland flooding could cost the logistics industry billions annually by 2050, as gaps between the upper surfaces of waterways and the bridges above them narrow, potentially leading to new height restrictions for cargo ships. Conditions at the Panama Canal have also already forced one of the world’s leading ocean carriers, Maersk, to transport goods by using a costly “land bridge” between Panamanian ports connected by nearly 50 miles of railroads.
Kearney’s report also highlights a handful of other factors that have led to struggles up and down the global supply chain.
“The global economy is expected to experience sluggish 2.5% growth across 2024, which would represent the slowest half-decade of output in 30 years,” the report reads. “Demand has not yet fully recovered, with myriad forces at play, and new growth engines will need traction before the tide turns.”
Freight forwarders have had a particularly difficult time, the report asserts, due to weak worldwide demand, an excess of carrier capacity, labor shortages, and geopolitical uncertainty, especially as the Red Sea crisis continues with no end in sight. The ocean freight industry has experienced similar struggles with “tepid” demand, coinciding with excess capacity brought on by aggressive orders for new ships during the pandemic.
“The combination has created an unpromising supply and demand cycle across the container sub-sector,” the report says.
As Houthi rebel attacks near the Suez Canal have continued, Kearney estimates that rerouted shipments have had to add roughly 10 days to their respective journeys to travel around South Africa’s Cape of Good Hope. In some cases, it’s even delayed vessels by two to three weeks, while driving freight rates up to as high as $10,000 per 40-foot equivalent unit. Shippers have also been adding incremental surcharges to account for the added risk and insurance costs from moving through conflict areas. To overcome those difficulties, Kearney’s report advises, shippers should coordinate with ocean carriers to “ensure competitive terms and conditions,” and to diversify transit modes and routes.
