Disruptions at Suez and Panama Canals Could Cost Retailers Dearly
Disruptions at Suez and Panama Canals Could Cost Retailers Dearly
Moody's Investors Service said in a report published this week that shipping disruptions at the Suez and Panama Canals could impose substantial costs on retailers. Since mid-December, attacks in the Red Sea have caused delays and disruptions at the Suez Canal, particularly affecting trade routes between Asia and the West, and between European and U.S. East Coast ports.
At the same time, severe drought conditions at the Panama Canal have reduced transit times in the Americas and intensified global supply chain disruptions.
Conditions in both regions have resulted in declining cargo volumes, delivery delays, and rising freight costs—developments that could negatively impact retailer profitability in the coming months.
European retail and apparel companies dependent on sea imports from Asia face the greatest risk, while U.S. and European firms reliant on timely seasonal product deliveries could also suffer significant delays.
Rising freight rates are among the top concerns, with container spot prices up more than 114 percent since last December and up more than 130 percent compared to 2019. These elevated costs could harm retailer margins through year-end.
According to Moody's report, if freight rates remain elevated, retailers may be forced to absorb these higher costs due to annual contract rates that reset periodically.
However, U.S.-based retailers face less severe conditions, as they can redirect shipments from East Coast and Gulf Coast ports—where vessels transiting the Suez and Panama Canals call—to West Coast ports. Nevertheless, as delays persist, the risk remains elevated for all retailers.
Key Takeaways
Disruptions at the Suez and Panama Canals could impose substantial costs on retailers.
Delays and disruptions are occurring on trade routes between Asia and the West.
Issues include declining cargo volumes, delivery delays, and rising freight costs.
European retail and apparel companies face the greatest risk.
Rising freight rates could negatively impact retailer profitability.
U.S.-based retailers can mitigate the situation by redirecting shipments to West Coast ports.