Panama Canal Pileup Due to Drought Reaches 154 Vessels

Panama Canal delays causing major U.S. trade disruptions. Rising costs & supply chain challenges are anticipated.

Panama Canal Pileup Due to Drought Reaches 154 Vessels
Image Source: Michael D. Camphin

The Panama Canal, crucial for U.S. shippers traveling to Gulf and East Coast ports, is experiencing unprecedented congestion due to drought-induced water conservation measures. There are currently 154 vessels waiting, with an average waiting time of 21 days. The U.S. is the most significant user of the canal, with U.S. cargo values amounting to about $270 billion passing through annually.

Economic Impacts:

  • Delays: The congestion results in shippers waiting longer to transit the canal, which has cascading impacts on supply chains.
  • Added Costs: Ocean carriers might choose alternative routes, leading to increased time and fuel expenses. Distributing freight across multiple vessels further adds to freight costs.
  • Supply Chain Strain: As U.S. shippers continue to prefer East Coast ports, any additional pressure on supply chains, which are still recovering from previous logistical challenges, may exacerbate the situation.

Impact on Consumer Goods & Prices:

  • The American Apparel & Footwear Association warns of possible surcharges and vessel restrictions that could elevate clothing and shoe prices for U.S. consumers, especially during the holiday season.
  • Potential alternative shipping routes, such as through the Suez Canal, might add significant transit times. For cargo from Northern China and North Asia, deviations via the Suez could result in 7-14 additional transit days, potentially leading to further delays in goods reaching U.S. consumers.

Potential Shifts in Shipping Routes:

  • Alan Baer, CEO of logistics company OL USA, indicates that given the challenges of accessing the U.S. East Coast through the Panama Canal, importers might consider rerouting via the Suez Canal, particularly for freight from the ASEAN region and some Southern China origins.

Repercussions on the Panama Canal Authority (PCA):

  • Due to water conservation measures triggered by drought, the PCA has temporarily reduced the number of booking slots for Panamax vessels and adjusted daily transit capacities.
  • The PCA is striving for transparency, providing regular updates to customers about slot availability and working collaboratively with shipping lines to manage expectations.

Long-term Implications & Future Projections:

  • Marine shipping experts, including Captain Adil Ashiq, anticipate the situation deteriorating before any potential improvement, signaling an extended period of disruption.
  • Shipping data shows a decrease of 4.1% in July for the top five West Coast ports and an increase of 4.1% for East and Gulf Coast ports, implying a shift in preference that might be accentuated by the canal's issues.

Source: CNBC

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