Strategy at the core

A sustainability strategy acts as a guiding map with clear objectives and precise action steps to minimize adverse effects on the environment while maximizing lasting advantages for both the company and society at large.

By adhering to global sustainability benchmarks, organizations manage ESG risks and also enhance their standing among various stakeholders, including clients, shareholders, and authorities.

These sustainability initiatives foster a culture of effectiveness and purpose within the organization, which also results in reduced expenses and enhanced competitiveness in markets increasingly demanding these efforts from the companies they patronize.

1. Cascades

Packaging and hygiene products producer Cascades Inc.’s sustainability action plan recently received accolades for its forward-thinking aspects, which aim toward a circular business model. The company has focused on building a legacy on their dedication maintaining a circular supply chain for their products and packaging.

For the 5^th year in a row, Cascades was ranked among the top 100 most sustainable companies in the world.

The company’s investment policy included proactive investments aimed at sustainability goals, with perhaps the most impressive point of this plan being a target to shift all packaging to recyclable, compostable, and reusable forms by 2030. Amidst the growing urgency to combat climate change, this bold vision reflects Cascades’ resolute application of its circular economy philosophy and waste reduction practices.

Furthermore, Cascades intends to be a pillar of North America’s recycling sector with 17 sorting facilities, while having an impressive high usage ratio of recycled fibers in its products at 83%. Through its guarantee that more than 90% of all the goods manufactured are compostable, it’s estimated that 2.2 million tonnes of fiber is diverted from landfill sites, which leads to the preservation of over 31 million trees. Cascades is a leader in demonstrating a strong commitment to the environment and to society.

2. IKEA

IKEA’s sustainability strategy is based on three fundamental pillars: living sustainably and healthfully, focusing on climate action and fairness, and safety first. Applying several programs and strategies, the “IKEA Concept” aims to expand the scope of its actions and expand the coverage of sustainability action through 2030 – to reach more than one billion people around the world.

It’s a broad-ranging program that may encourage a huge section of the global population to adopt sustainable lifestyles and minimize the adverse impacts of their activities.

IKEA acknowledges the increasing importance of the contribution of families to the health, environment, and resilience of today’s world. For instance, these groups are helping to take care of our environment by working towards the reduction of pollution and carbon emissions through promoting energy and water conservation, the use of renewable energy sources, as well as suggesting sustainable means of nutrition.

Among their efforts, IKEA is are 100% committed to sustainable cotton ensuring the cotton they use is grown with less water and chemicals, helping areas that are subject to erosion and water scarcity.

The company has also prioritized drastically reducing greenhouse gas emissions across the IKEA value chain and moved toward the use of only renewable or recycled materials by 2030.

All wood used in IKEA products is also sourced from responsibly managed forests which do not contribute to deforestation.

On top of that IKEA has become very popular by developing products that are not just the cheapest but also the greenest, hence people are observing IKEA’s green credentials and making some effort to follow their lead.

IKEA’s vision: through 2030, reaching zero fossil materials or fuels used. This should be a major contributor to the reduction of global warming.

3. Pact

Pact developed a sustainability strategy which is based on organic cotton, fair trade practices, and environmentally smart shipping. Its initial purpose was to be an underwear brand, which has extended into men and women’s clothing.

Being a label that offers all kinds of organic cotton with tops, dresses, and lounge wear, it now ensures it sells only GOTS organic cotton, and that its processes are also certified by fair trade factories.

A notable example of their circular fashion initiatives is their partnership with the “Give Back Box” program, whereby people can use free shipping labels distributed by Pact to send on their used clothing on to multiple charities.

Through teaming up with SimpliZero and organizations similar to that, Pact ensures that each one of its products is manufactured on a zero-emissions basis and completely carbon neutral.

Packaging with Pact is all about paper eco envelopes with FSC-certified 100% recyclable material and cardboard boxes constructed of recycled material. All in all, Pact’s sustainability plan consists of fair-trade alternatives, carbon emission offsetting and ecologically sustainable packaging, showing the company’s involvement in the environmental and societal responsibility of the fashion business.

4. Novo Nordisk

A pharmaceutical giant, Novo Nordisk manifests its dedication to the environment through an innovative program called “Circular for Zero”, which tries to get Novo Nordisk to a point where the company’s activities pose no harm to nature.

The company reported a more than 66% reduction in carbon emissions and progressed even more after achieving 100% renewable energy consumption in all production centers in November 2020.

Aware of the magnitude of the sustainability issue, Novo Nordisk emphasizes that it will shift its supply chain and zero emissions out by 2045 through a set of bold ambitions, justifying its unalloyed dedication to sustainability.

Novo Nordisk not only has to face environmental issues but also solve the matter of equal access to treatment and affordable treatment for all patients who are in dire need with the help of their company.

The company’s “Changing Diabetes® in Children” Program is global and in almost 380 hospitals in low and middle-income countries, the initial goal being to create a platform where children with diabetes would have access to the right medical treatment.

Collaborating with UNICEF as a partner helps the company build an operations strategy concerned with identifying environmental factors. The activities demonstrate how Novo Nordisk encompasses the whole approach to disease prevention.

5. Clif Bar

Clif Bar implements CSR through various environmental initiatives including waste reduction, using renewable energy sources and campaigning for protecting our forests. Moreover, Clif Bar aims to make all its packaging recyclable, compostable or reusable by 2025, and this process is going to begin with the classic Clif Bar packaging.

Reducing plastic usage stands as the main principle followed by the company, and it plans to minimize the consumption of plastic by 12% and to acquire 25% of its plastic from recycled or renewable sources by 2025. In addition, Clif Bar has committed to remove 1000 tons of plastics from the ocean within the specified years.

Besides that, Clif Bar has moved towards the harnessing of renewable energy which is one of the company’s main objectives, and to have all their production facilities powered by clean energy by the year 2030 as well as cutting down CO2 emissions by half.

The firm also aims at planting up to 1 million trees by 2030.

Clif Bar’s process-based approach in its value chain is an indicator of the organization’s determination to make the whole food system sustainable – from sourcing raw materials to the final product delivery – as healthy as possible.

Sustainability with purpose

The path to sustainability for companies no matter small or large is by way of combining purpose and faithfulness. It’s clear that sustainable management can be applied not just in the operations of business, but also can cover waste disposal, renewal of energy sources, procurement of raw materials, and reduction of plastic use.

These brands are serving as leaders, demonstrating how companies can start modifying their business practices by focusing on environmental issues and building a portfolio of green activities to create this future. The promotion of sustainability is not solely a decision, but also an obligatory commitment. Its advantages are not only for the company and its customers, but for the entire global community as a whole.

These issues not only underscore the canals’ vulnerabilities but also their crucial role in maintaining the rhythm of global trade. We also explore the strategies traders are employing to navigate these challenges and the outlook for 2024, offering insights into the future of these vital trade routes.

The importance of the Suez and Panama canals on global trade

The Suez Canal, opened in November 1869, is a 193km waterway connecting the Mediterranean Sea and the Red Sea. It provides a direct route for shipping between Europe and Asia, bypassing the need to navigate around Africa.

Approximately 12% of global trade, representing 30% of all global container traffic and over USD $1 trillion worth of goods per annum, passes through the Suez Canal.

This includes energy, commodities, consumer goods, and componentry from Asia and the Middle East to Europe.

The Panama Canal, opened in 1914, is another vital link in global maritime transportation, connecting the Atlantic and Pacific Oceans. It allows ships to avoid the lengthy and hazardous voyage around Cape Horn at the southern tip of South America.

The canal plays a crucial role in global supply chains, supporting the movement of various commodities, including dry bulk, container, chemical tankers, and more.

Both canals have had significant impacts on global trade patterns and the economic geography of many countries. They have facilitated faster delivery of goods, but their importance also highlights the vulnerability of global supply chains, as blockages or disruptions in these canals can have far-reaching effects on global trade.

What the drought has meant for the Panama Canal

Drought has led to decreased water levels in the Panama Canal. Water is crucial for its operation as water is used to raise and lower ships. This has forced officials to reduce the number of vessels they allow through the canal, creating expensive complications for shipping companies.

The decreased water level in the canal is due to a reduction in rainfall in Panama, leading to one of the driest years in the country’s history. The water levels in the Gatun Lake, which feeds the canal, have reduced significantly compared to usual levels during this period. This has led to a severe drought, with water levels in the canal at their lowest in decades.

The drought has also led to delays in transit times, impacting the ability of large cargo ships to quickly traverse the Panama Canal. The Panama Canal Authority has had to implement new operational measures to minimize the impact of the drought. These measures include reducing the number of available reservation slots, which is likely to hinder trade levels, particularly for the U.S. East Coast.

The drought has also forced the Panama Canal Authority to reduce the number of daily transits and the maximum weight of ships. This has led to a significant reduction in vessel traffic, affecting the flow of trade. Shipping containers are piling up along the Panama Canal, triggering a wave of supply chain disruptions. This has led to additional container surcharges imposed by ocean carriers on shippers.

Conflict in the Red Sea – and its implications for Suez Canal attacks

The current conflict in the Red Sea involves Houthi rebel attacks on maritime vessels, which has escalated military tensions in the region. The Houthis, who control a portion of Yemen’s Red Sea coastline, have launched missiles and drones against ships, asserting that their actions are retaliatory against Israel’s military operations.

These attacks have disrupted international shipping and led to a multinational maritime security force, including the U.S. and U.K., to protect ships passing through the Red Sea. The implications for the Suez Canal are significant, as it is one of the world’s most crucial maritime chokepoints, facilitating a substantial portion of global trade.

Any disruption in the Red Sea could impact the flow of traffic through the Suez Canal, potentially causing delays and economic repercussions due to the canal’s strategic importance in connecting the Mediterranean Sea to the Red Sea, and thereby Europe to Asia.

The conflict has attracted international attention, with various nations responding to the threat against shipping in the Red Sea. The U.S. and U.K. have conducted airstrikes against Houthi targets in response to the attacks, and there is concern that the conflict could widen, affecting not just regional but global stability and trade.

Understanding the aggregate effect

The aggregate effect of restrictions on both the Panama Canal and the Suez Canal can be profound for global trade.

These two canals are essential shortcuts for maritime shipping, with the Panama Canal facilitating about 6% of global trade and the Suez Canal handling around 12%.

When operations at these canals are restricted, it can lead to significant delays, increased shipping costs, and disruptions in supply chains.

For instance, the Panama Canal drought meant that ports in Panama, Nicaragua, Ecuador, Peru, El Salvador, and Jamaica have seen 10% to 25% of their total maritime trade flows affected. The Suez Canal’s disruption could add about 10 days to the duration of trips, forcing ships to reroute around the Cape of Good Hope, adding about 3,000-3,500 nautical miles to journeys.

These disruptions can also lead to increased prices for goods. The Panama Canal disruption has resulted in generalized price increases for agricultural commodities and food industry produce in Europe. The Suez Canal disruption could lead to surging prices on goods like oil and gas.

Moreover, these disruptions can force shipping companies to seek alternative routes or modes of transportation, which can further increase costs and lead to delays. Some shipping companies have started redirecting shipments from Asia away from Panama and through the Suez Canal due to the Panama Canal’s drought.

However, with the ongoing conflict in the Red Sea, these companies may have to reroute their vessels around Africa, adding at least a week to the journey.

5 strategies importers and exporters can action to avoid disruption

Goods and commodity traders can employ several strategies to compensate for disruptions in the Panama and Suez Canals:

• Diversification of supply chains: One option is to diversify supply chains to reduce dependence on a single route. This could involve using alternative shipping routes, such as the Cape of Good Hope, or exploring other modes of transportation like rail or air freight.
• Stockpiling and strategic reserves: Traders can maintain larger inventories or strategic reserves of key commodities to buffer against supply chain disruptions. This strategy, however, increases storage costs and may not be feasible for perishable goods.
• Insurance and hedging: Insurance can cover losses from supply chain disruptions. Traders can also use financial instruments, such as futures and options, to hedge against price volatility caused by disruptions.
• Investment in technology: Considering investing in technology to improve supply chain visibility and resilience. For example, supply chain control towers, which use artificial intelligence, can provide timely alerts about possible delays, allowing companies to adjust their strategies quickly.
• Trade shifts: Traders can shift their trade towards regions or countries that have increased their exports due to the disruptions. For instance, traditional trading partners like the United States, Canada, Australia, and New Zealand have heavily increased their exports towards the EU27.

While disruptions in the Panama and Suez Canals pose significant challenges, traders have a range of strategies at their disposal to mitigate the impacts.

The choice of strategy will depend on the specific circumstances of each trader, including their risk tolerance, financial resources, and the nature of the commodities they trade.

The Panama and Suez Canal outlook for  2024

In the Panama Canal, daily vessel passages, expected to reduce to 18, have instead increased to 24, and delays have been minimal. Despite this, water levels remain below average, and the long-term outlook for the canal is concerning.

Meanwhile, the Red Sea crisis has seen increased security issues, with attacks by Yemen’s Houthi forces on commercial vessels causing most container lines to reroute around Africa and the Cape of Good Hope.

It is arguably the Suez Canal that poses the biggest ongoing threat to global trade flows. The lack of security in the Red Sea has led to a halt in transits, and any potential military action to increase security will risk escalating the regional conflict.

Users of freight shipping are advised to monitor the port outlook as 2024 is set to see problematic conditions for at least the first quarter. Resolving the issues in both the Panama and Suez Canals is crucial for the industry, but there are no quick or easy solutions to the challenges currently faced.

In the aftermath of a global pandemic and with the context of shifting geopolitical landscapes nations struggle with what looks like slowing trade. In this article we examine the current state of global trade, weighing the optimistic strides made against a backdrop of challenges.

Progress in August

First, the good news – it looks like significant progress in global trade growth was made in August, as several factors appear to support broader international trade – according to the WTO’s August 2023 trade report.

For example, Ukraine has initiated a significant move by opening a “humanitarian corridor” in the Black Sea for cargo ships. It’s a marked change when considering the recent collapse of the Black Sea Grain Initiative: Russia’s exit from the grain initiative and its subsequent blockade on Ukraine.

On a broader trade front, the WTO stated in the same report that services trade is witnessing what looks like more robust growth compared to merchandise trade. This difference is particularly accentuated thanks to export restrictions on key goods, including food and fertilizers.

In fact since 2020, there has been a significant increase in export restrictions. For instance, 63 such restrictions are in place for food, feed, and fertilizers.

Last year, the services trade saw a remarkable 15% boost, decisively outperforming the 2.7% growth in merchandise trade.

When combined, the total trade experienced a 13% surge, accumulating to an impressive $31 trillion.

Challenges in many corners

Diving deeper into global trade intricacies, we see a few pinch points – including a reminder of how physical pinch points such as the Suez and the Panama Canal can restrict global trade.

A severe drought at the Panama Canal is causing significant disruptions to global trade. In practice cargo ships have waited for extended periods, sometimes several weeks, to traverse the canal – which delayed cargo significantly, and led to a build-up of vessels.

The Panama Canal Authority (ACP) has had to limit the number of vessels using the canal and impose restrictions on ships’ depth, limiting the cargo they can carry, due to water scarcity. The ongoing drought situation is described as presenting “unprecedented challenges”.

The canal, which connects almost 2,000 ports across 170 countries, is pivotal for international trade, with major traffic from across the globe but in particular countries such as the United States, China, and Japan.

The drought’s impact on the canal emphasizes the increasingly disruptive consequences of the climate crisis on global supply chains.

Trade volume under policy pressure

China, a major player in the world’s economic scenario, registered a sharp decline in both exports, by 14.5%, and imports, by 12.4%, in July. One event that may have contributed is the US decision to curtail its investments in some pivotal Chinese tech sectors.

Also in the East, Japan and Qatar are keenly focused on strengthening their trade ties, but there’s a cloud of uncertainty between Japan and the US due to disagreements over whaling practices.

The changing global climate has also been exerting pressure on trade. Rising temperatures have escalated food prices, with soybeans, olive oil, and rice facing severe shortages.

The emphasis on climate-aligned foreign direct investment (FDI) is now seen arguably at the core of sustainable growth of developing nations.

A noteworthy development from the West is the recent downgrading of the US’s long-term credit rating, which poses intriguing questions about the behemoth economy’s future borrowing and investment capabilities.

IMF comment underlines global concerns

In the aftermath of a global pandemic, the world finds itself grappling with unprecedented challenges. Recent research from the Kansas City Federal Reserve paints a challenging picture of the post-pandemic global economy, highlighting issues like soaring government debt, geopolitical tensions, and an unsettling trajectory for technological innovation.

With the backdrop of geopolitical disruptions like the Russian invasion of Ukraine and escalating U.S.-China tensions, global trade appears to stand at a tough crossroads.

Pierre-Olivier Gourinchas, the International Monetary Fund’s chief economist, underscores the fragility of the current state, noting that countries are drained after battling the pandemic, and that policy-driven forces and decoupling between China and the West add further strain.

The looming danger is a possible stagnation where parts of the world fail to progress, leading to demographic and migration pressures. Economists, including Gourinchas, believe that global growth might stagnate around 3%, a disappointing rate compared to the past where China’s rapid development drove figures above 4%.

Existing trends amplified by COVID-19

The impact of the pandemic amplified certain pre-existing trends. A paper by Serkan Arslanalp of the IMF and Barry Eichengreen from the University of California, Berkeley, reveals a troubling statistic: the ratio of public debt to global economic output surged to 60%.

This was largely driven by pandemic spending by governments. Such unsustainable levels of debt threaten to divert vital resources away from developing nations that have burgeoning populations but lack capital.

Recent geopolitical events, notably the Russian aggression against Ukraine, have also fragmented the longstanding belief that trade fosters lasting international partnerships.

COVID-19 had, of course, a huge impact on global trade flows and arguably became a movement where many participants in global trade decided that near-shoring is also the equivalent of de-risking.

It led to a pattern of nearshoring but World Trade Organization Director-General Ngozi Okonjo-Iweala cautions against the current trend of reordering global production patterns. While diversifying trade might seem appealing, it’s essential to extend opportunities to those nations historically sidelined in the global trade arena.

What does global growth look like?

Global economic growth is a natural driver of trade growth. From an economic standpoint, recent economic projections from the IMF shows global growth decelerating, with projections declining from 3.5% in 2022 to 3.0% for 2023 and 2024.

Although inflation in developed economies shows signs of slowing, trade volumes are down. Manufacturing sectors worldwide are experiencing a slowdown, and while services are expanding, there’s noticeable deceleration.

The ripple effects of the pandemic also extend to the future of work, affecting urban economies. Demand for office spaces in major cities like New York, London, and San Francisco is dwindling, with average office attendance dropping significantly.

In general it could be suggested that global growth is somewhat anemic – and there are also signs that China may not offer much support in the near future.

Debt may continue to weigh on trade

Despite the myriad challenges facing global trade, and an ongoing recession threat, it’s worth considering the resilience shown by key economies. Growth in certain sectors, like the services trade, offer a beacon of hope.

The commitment of nations to navigate these complex issues, combined with the need to diversify and include historically sidelined nations, has the potential to reshape and strengthen global trade patterns for a more inclusive and prosperous future.

For organizations dependent on global trade it therefore depends on the ability to harness opportunities – which, though under pressure, will still be out there to harness.