The Red Sea and the Panama Canal: Plan for Scenarios, Not Forecasts

Two Shortcuts, Both in Trouble

Global shipping depends on two great shortcuts: the Suez Canal, reached through the Red Sea, and the Panama Canal. Both are now disrupted at the same time, for completely different reasons.

In the Red Sea, attacks on commercial ships by Houthi forces in Yemen have led major carriers to pause transits. Maersk announced on December 15 that it would pause its vessels' passage through the area, and other large carriers have followed. On December 18 the United States announced Operation Prosperity Guardian, a multinational effort to protect shipping in the region. Ships that avoid the Red Sea must sail around the Cape of Good Hope instead, which analysts told the Associated Press can add a week to ten days or more to a voyage, along with more fuel and higher costs.

At the Panama Canal, a severe drought has lowered the water levels the canal relies on to operate its locks.

At the Panama Canal, a severe drought has lowered the water levels the canal relies on to operate its locks. The canal authority has cut the number of daily transits and limited how deeply ships can be loaded, causing delays and pushing some shippers to alternative routes.

Why the Single Forecast Fails

Most supply chain planning, including the planning inside most ERP systems, works from a single view of the future. There is one lead time for each part, one forecast for each product, one expected arrival date for each shipment. That works when the future looks like the past. It fails when the range of possible outcomes widens suddenly, as it has now.

The problem is not that planners lack skill. It is that a single number cannot represent a situation in which a shipment might arrive on time, two weeks late, or much later depending on decisions made by carriers, navies and canal authorities that nobody can predict.

Plan Around Scenarios

Scenario planning replaces the single forecast with a small number of plausible futures and asks what each would mean for the business. For the current situation, a manufacturer might consider three: disruption that eases within weeks, disruption that persists for several months with routes around Africa becoming normal, and a wider escalation that affects more routes and drives freight costs sharply higher.

For each scenario, ask concrete questions. Which inbound parts and outbound shipments are affected? How do lead times change? What happens to landed cost? Where do shortages appear first, and which customers are affected? What decisions would you make differently, and by when would you have to make them?

The value is not in predicting which scenario will occur. It is in knowing in advance what you would do under each, so that when the situation becomes clearer, you act in days rather than weeks.

Find the Exposure in Your Data

Scenario planning only works if you can see which parts of your supply chain are exposed. That requires knowing, for each important purchased item, where it comes from, how it travels, and through which ports and routes. Many manufacturers do not have this information in their ERP. They know the supplier's address, not the route the goods take.

Start with the parts and finished goods that matter most, and add the origin port, the destination port and the typical routing as attributes. When the next disruption hits, a simple query will tell you which parts are affected, rather than a week of emails to suppliers and forwarders.

Use Lead Time Ranges, Not Points

Inside the planning system, the practical step is to stop treating lead time as a single fixed number for exposed parts. Review the parts whose routes cross the affected regions and adjust their planning lead times to reflect the likely delay. Consider modest increases in safety stock for critical items while the uncertainty lasts, and set a date to review those changes so that they are reversed when conditions improve.

This is the same discipline that served manufacturers well during the shortages of 2021 and the glut of 2022: adjust parameters deliberately, record why, and review them on a schedule.

The Bottom Line

The simultaneous disruption of the Red Sea and Panama Canal routes is a reminder that supply chains rarely fail in the way the plan assumes. Manufacturers that plan around a few clear scenarios, know which parts and routes are exposed, adjust lead times and buffers deliberately for those parts, and decide in advance what they would do under each case will respond faster and with less cost than those waiting for a single forecast to become right.

At Cherry Street, this is the work we do. We help manufacturers map the routes their critical parts travel, build scenario plans that connect to their ERP, and set up the planning adjustments that let them respond to disruption in days instead of weeks.