Panama Canal Problems Create Difficulties for International Trade

The Panama Canal drought crisis continues. October was the region’s driest month since 1950, according to the canal authority. This affects maritime traffic, because the levels of the reservoirs (especially Gatun Lake) that feed the lock system are low. Therefore, there is less water, which reduces the number of ships that can pass each day. Of the 35 daily transits in a normal period, only 22 per day will be guaranteed in December 2023, 20 in January, and finally, 18 in February, then rainfall during the monsoon should lead to greater water availability.

According to the Financial Times, such a situation could lead to difficulties with the supply of goods in the pre-Christmas period and, in any case, to problems that could continue into 2024 and should raise questions about the future of international trade and supply chains. “According to MDS Transmodal,” writes the British financial newspaper, “the change in route from Panama to Suez adds five days to the journey between New York and Shanghai for ships traveling at 16 knots. If more shipowners avoid the Suez Canal and take the long route around Africa’s Cape of Good Hope to travel between these two cities, this could add another six days to the journey.”

Meanwhile, there are concerns for the Suez Canal, as attacks involving Yemeni rebels have been reported. In early December, three commercial ships were attacked in international waters in the southern Red Sea, and Yemen’s Houthis claimed drone and missile attacks on two Israeli ships in the area, Reuters reported. “If this situation worsens, the combination with the restrictions in Panama will be catastrophic,” an operator of a European shipowner explained to the FT.

In the first week of December 2023, 167 vessels crossed the canal, compared with 238 in the same month in 2022, according to MarineTraffic. Those who haven’t made a reservation face an average wait of 12.2 days. Available spaces are sold at auction, and the cost of transit increases, which inevitably affects the final price of the goods.

This situation, according to Reuters, will lead to a crisis, particularly in the grain trade. Those traveling from the US Gulf export hub to Asia are taking longer routes and paying higher shipping costs to avoid congestion in Panama. And rising transportation costs have a greater impact on low-margin commodities such as wheat.

“This is the peak season for US crop exports, and higher costs risk dampening demand from American suppliers of corn and soybeans, which have already lost market share to Brazil in recent years,” Reuter explains. Vessels carrying grain are often the last to pass through, because the type of cargo makes it impossible to schedule delivery months in advance, as is the case with container ships or cruise ships.