Uncertainty • Stagnation • Blockage
These are some of the words used to describe the scenario that has prevailed in the Panama Canal in recent months. Drought conditions have led to very low levels of water in the region, which has not only restricted and disrupted global trade routes, but has also resulted in longer delivery times for goods and increased costs and additional charges.
But to understand the current transit times and the reasons that have caused the usual routes to change, read today’s publication.
Panama Canal
It is estimated that around 14% of trade between the United States and the rest of the world passes through the Panama Canal. Due to periods of drought caused by climate crises, the canal is currently facing alarming water levels, resulting in a reduction in daily throughput from 36 ships to 22. These restrictions have increased the demand for rail and road transport.
Apart from Latin America and the East Coast of the United States, there are more regions dependent on the Panama Canal, see below:
• Guatemala: 32%
• Ecuador: 28%
• Chile: 24%
• Panama: 23%
• Peru: 23%
• USA: 14%
• Mexico: 9%
• Colombia: 9%
• Japan: 5%
• South Korea: 4%
• Canada: 3%
• China: 2%
• Spain: 2%
• Netherlands: 1%
Examples of Expected Deviations
Due to the restrictions of the daily flow of ships, the typical regular shipping routes through the Panama Canal are subject to change. Would you like to know what they are?
1. Any vessel travelling from Asia to the United States that is currently passing through the Panama Canal may have to turn west and cross the Cape of Good Hope in the far south of Africa.
- Usual Route: 26 days of transit
- Route With Detours: 39 days of traffic
Vessels travelling from the west coast of South America to the Caribbean, usually through the Panama Canal, might have to cross the Straits of Magellan at the southern end of South America.
- Usual Route: 6 days transit
- Route With Detours: 31 days of traffic
As a result of the restrictions, it is estimated that there will be around 4,000 fewer crossings from the Panama Canal.
Costs Vary By Commodity
Whereas in the past only a few ships carrying more valuable cargo, such as natural gas carriers, chose to pay a fee to have priority in the Channel and benefit from faster journeys, other types of ships with lower daily operating costs and less valuable cargo, such as bulk carriers (grain and coal) and general cargo (wind turbines, locomotives, etc.), which crossed the Channel without paying for the priority reserve, will now also have to pay a fee to ensure their passage through the Channel.
% change from 2022:
• Dry Bulk: +14%
• General Charge: +14%
• Vehicle Transporters/Roro: +12%
• LPG (Liquefied Petroleum Gas): +5%
• Chemical Tankers: +5%
• Refrigerated: +3%
• Crude Oil Tankers: +3%
• LNG (Liquefied Natural Gas): +3%
• Containers: + < 1
Impact of these Restrictions:
- Ships diverted from Panama’s routes are forced to travel faster to compensate for longer detours, burning more fuel and increasing overall transport costs.
- Increased average container freight rates (e.g. routes between Asia and the west coast of the United States increased by 162% – yet this coast provides an alternative rail route to destinations in the central and eastern United States).
- A reduction in the daily number of ships passing through the Panama Canal from 35/40 ships before the dry season to 24 ships today.
- Restrictions and fees on the carrying capacity and maximum depth of vessels – reduced from 50 feet to 44 feet.
- Although it will take some time for this to be reflected in the final bill, all prices, especially energy and food, continue to rise.
How to Prepare for the Future?
- Assess the potential impact on transport and trade, particularly for developing countries.
- Track shipping and transit times.
- Monitor ship and port security measures.
- Monitor the movement of freight and insurance rates, shipping lines and global trade.
And, most importantly…
Have a reliable logistics provider who will keep you informed of key developments and events that may affect the sector.
At Olicargo, today’s challenges test our resilience and commitment to our customers. For you, your cargo and your business, we will continue to provide efficient service and on-time delivery.
Sources:
GEP. (2024). Panama Canal Drought: The Impact On Global Shipping Worsens. Retrieved 20 March 2024 at:https://www.gep.com/blog/mind/panama-canal-drought-impact-on-global-shipping
McKinsey & Company. (2024). How could Panama Canal restrictions affect supply chains?. Retrieved 05 de março de 2024, at: https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/how-could-panama-canal-restrictions-affect-supply-chains
Prevention Web. (2024). Navigating troubled waters: Impact to global trade of disruption of shipping routes in the Red Sea, Black Sea and Panama Canal – UNCTAD rapid assessment. Retrieved 05 March 2024 at: https://www.preventionweb.net/news/navigating-troubled-waters-impact-global-trade-disruption-shipping-routes-red-sea-black-sea
Searates. (2024). The Impact of Panama Canal Situation on Global Supply Chains. Retrieved 20 March 2024 at: https://www.searates.com/blog/post/the-impact-of-panama-canal-situation-on-global-supply-chains
UNCTAD. (2024). NAVIGATING TROUBLED WATERS Navigating Troubled Waters: Impact To Global Trade of Disruption of Shipping Routes In The Red Sea, Black Sea and Panama Canal. Retrieved 04 March 2024 at: https://unctad.org/publication/navigating-troubled-waters-impact-global-trade-disruption-shipping-routes-red-sea-black
UNCTAD. (2024). Red Sea, Black Sea and Panama Canal: UNCTAD raises alarm on global trade disruptions. Retrieved 04 March 2024 at: https://unctad.org/news/red-sea-black-sea-and-panama-canal-unctad-raises-alarm-global-trade-disruptions
