Image credit: MarineTraffic – 17 November situation
The Panama Canal, is facing significant challenges due to a drought exacerbated by the El Niño weather system and is faceing considenable congestion, as we have reported earlier here. This critical waterway, connecting the Atlantic and Pacific Oceans, is crucial for shorter transit routes, time and cost savings, and global supply chains.
One of the key reasons for the canal’s indispensability is its role in shortening the distance between ports on the east and west coasts of the Americas. Approximately 72 percent of transiting ships have either U.S. ports as their destination or point of origin. This reduction in transit distance not only facilitates more efficient trade but also translates to significant time and cost savings for shipping companies. The shorter transit time allows for faster delivery of goods, a boon for industries reliant on just-in-time supply chains and time-sensitive cargoes.
With El Niño gaining strength and a predicted significant drought in northern South America and Central America for the remainder of 2023 and early 2024, the Panama Canal is facing challenges and concerns loom. The potential worsening of water levels in 2024 during the dry season (December to April) raises questions about the impact on transit restrictions.
The expectation is that current restrictions will continue until water levels at Lake Gatún and Lake Alajuela return to normal. This poses a potential threat to global supply chains, particularly affecting commodities like Dry Bulk, Container, Chemical Tankers, LPG carriers, LNG, Vehicle carriers, Refrigerated cargo, General Cargo, and Passenger ship
The consequences of these challenges extend to global trade, with potential delays and increased costs affecting both South and North American agricultural trade. As the canal is a critical link connecting the Pacific and Atlantic Oceans, any disruptions could have severe implications. The U.S., as the largest user of the Panama Canal, with about 73% of traffic, relies heavily on this waterway. Approximately 40% of all U.S. container traffic, valued at about $270 billion, passes through the canal annually. The impact on U.S. energy and agriculture, which heavily depend on this trade route, could be substantial.
Increased waiting times for large containerships, with nearly 3% of global maritime trade volumes affected. Dry bulk carriers, chemical and crude product tankers, and liquified petroleum gas carriers have experienced escalating waiting times.
In response to the reduced water levels, vessels are currently traversing the canal at 40% lighter capacity. Some containerships are even unloading containers to meet weight requirements, transporting them by rail or road across Panama before reloading on the other side. The canal authority aims to maintain weight requirements, even if it necessitates further reductions in transit numbers.
As the canal experiences extended ship queues and waiting times, concerns are rising about the potential intensification of issues in 2024. Shippers are advised to brace for potential challenges, emphasizing the need for proactive measures to mitigate the impact on global trade and supply chains.
