California Apparel News

    Nate Herman | Photo courtesy of AAFA

2024 is starting off with a bang. The daily attacks on ships in the Red Sea, the most severe drought in the history of the Panama Canal, the looming expiration of the East and Gulf Coast ports labor contract governing some of the nation’s busiest ports—all during an increase in consumer demand for clothing and footwear products.

Each of these issues alone should raise concerns for an industry reliant on shipping to move its products. Paired together, they present a dire picture for shipping in 2024, especially for an industry still battling inflation and a fickle consumer.

The Suez Canal, one of the world’s largest gateways, has seen ship traffic drop precipitously since the start of attacks at the Red Sea. Instead, ships are doing something unheard of in decades, traveling around the southern tip of Africa, the Cape of Good Hope. This change adds significant costs in fuel and labor and adds weeks of delays multiplied by millions of containers of goods. These delays are creating knock-on effects, triggering equipment shortages as containers and boats are tied up for weeks longer than expected and worsening the carbon footprint by burning fuel for longer when we are trying to lessen that impact. And, on top of all that, traversing the Cape of Good Hope as winter approaches in the Southern Hemisphere will cause more delays as the southern passage becomes even more treacherous.

While the situation in the Panama Canal is not as unsafe, it is no less dire. Thanks to an unheard-of and unrelenting drought, the Panama Canal has again slashed the number of ships that can transit the canal to 24 ships, an over 30 percent reduction from the normal 38 ships a day. This does not even include the draft restrictions that have dramatically reduced the number of containers those ships can carry through the canal. To put this in stark terms, 791 fewer ships traversed the Panama Canal in the last quarter versus a year ago. Where are all of those ships going? Many had started to move to the Suez Canal, but with that option off the table some have started to go around Tierra del Fuego at the southern tip of South America. If anyone has read “The Wager,” which I highly recommend, you would know that is no small feat, even in the best of weather. The situation has gotten so bad that one major carrier, Maersk, has announced it will instead move cargo by rail over Panama. That means it will empty ships on the Pacific side, load the cargo on trains, then reload the ships on the Atlantic side. I wouldn’t want to do that with a few pounds of groceries let alone literally tons of in-demand consumer goods.

The labor contracts of dockworkers at all East/Gulf Coast ports expire on Sept. 30. Already the union representing dockworkers has threatened to strike if no deal is reached by the deadline. Yet the two sides are not even negotiating. As we saw on the West Coast last year, even if there is no strike we could see slowdowns and other work stoppages at the ports that were our industry’s saviors during the supply-chain crisis. These ports now account for almost half of our product thanks to that very same migration from the West Coast over the shipping crisis.

The good news of increased consumer demand for AAFA member products is tempered by the fact that these products now must traverse this worsening logistics picture. The last supply-chain crisis did not end because the carriers, the ports and the railroads finally got their act together. Rather, the supply-chain crisis only ended when demand dropped as consumers switched their buying patterns due to changing tastes and inflation, which itself was triggered by logistics-fueled cost increases.

We saw hot demand in 2022 that dropped suddenly to create massive inventory stockpiles in 2023. With those inventories now lowered to manageable levels and returning demand, we will be reliant again on an efficient logistics system operating at capacity.

Does the horizon look like a pileup of goods on the open sea? Rainy season usually starts in April in Panama. There could be a deal on a new East/Gulf Coast ports labor contract. The Red Sea crisis could fade, particularly if the global community unites behind a zero-tolerance approach to efforts to disrupt maritime shipping. And an economic recession is still a possibility. Only time will tell. But this time, develop contingency plans now for your cargo, no matter where you are going, and be prepared to respond quickly, utilizing all modes of transportation—ocean, air, rail and truck.

Nate Herman leads the industry’s policy work as Senior Vice President, Policy, at the American Apparel & Footwear Association. Follow with @HermanNate and connect on LinkedIn.