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While wood products markets could be described as listless in 2024, numerous global and transcontinental transportation challenges have appeared over the last year, keeping traders on their toes, especially those dealing with offshore shipments.
Since November of last year, Yemen’s Houthi rebels have targeted ships as they enter the Red Sea and make their way to the Suez Canal. To dodge the Middle East war zone, overseas shipments scheduled to pass through the canal are being diverted around the Cape of Good Hope at the southern tip of Africa. For a shipment from Taiwan to Europe, for example, this adds another 3,500 miles and 8.5 days to the delivery.
According to the US Naval Institute, 12% of global trade typically enters the Suez Canal each year. This disruption in the global supply chain is equivalent to a 9% reduction in the world’s shipping capacity, according to J.P. Morgan.
The world’s other major overseas shortcut, the Panama Canal, is having its own issues. Sustained by a freshwater lake, a severe lack of rainfall last year resulted in critically low water levels used by the canal this year. Consequently, shipments through the canal were reduced significantly, creating a bottleneck.
Capable of accommodating 38 ships per day, the canal saw transits drop by nearly half late last year before climbing into the mid-20s early in 2024. More recent heavy rainfall has allowed transits to increase in recent months. As of September 20, 36 transits were crossing the canal daily out of a full schedule of 38 ships.
These interruptions in supply chains have contributed to significantly higher costs in the form of higher shipping rates. Weaker demand for imported products has forced some companies to absorb much of the increased shipping costs.
Further south, heavy rains in Southern Brazil produced devastating floods that constricted activity at that country’s ports beginning last year and extending into May of this year. Consequently, port congestion has extended ship times for Radiata Pine from South America, prompting U.S. buyers to cover more of their needs with domestic volumes.
At the end of August, a short-lived strike by workers at the two largest Canadian railroads mildly impacted the flow of wood products. The perception among many wood products traders was that the strike would occur and linger a few days before the government ordered arbitration between the two sides.
As a result, lumber and panel buyers did purchase measured insurance volumes. However, only hours after rail workers went on strike, the Canadian government ordered both sides into arbitration, paving the way for railcar shipments to proceed.
The latest transportation hang up was the dockworker strike across America’s East and Gulf Coast ports, which commenced at midnight October 1. The pause of those imported goods had the potential to create shortages and propel their prices higher if the strike lasted long.
However, the International Longshoremen’s Association agreed to suspend the strike on October 3 under their current contract with the United States Maritime Alliance until January 15, 2025.
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