A severe Panama Canal drought has left water levels too low for their usual traffic. The canal, a linchpin in global trade, is cutting back on the number of ships it allows through each day.
The Panama Canal serves a total of 180 maritime routes that link 1,920 ports across 170 countries. Typically 34-36 ships pass through the Canal on a daily basis. That number was already reduced to 31 because of the drought.
Starting on November 3, booking slots will be further reduced from 31 per day to 25. That number goes down to 22 in December. By February 1, there will only be 18 available slots a day.
Gridlock on the supply chain?
According to the Wall Street Journal, containerships that are on a fixed schedule and have booked slots months in advance, will face some delays, but no serious delays. However, ships carrying crude or gas that did not make an advance booking, may be trapped for several weeks.
Even still, I’m banking that the current reduction of 15 transit slots will not only send a ripple through supply chains worldwide — it will directly hit U.S. economy.
A whopping 2/3 of shipping traffic passing though the canal is either headed towards or coming from the United States. In fact, the U.S. is the top user country of the Panama Canal, followed up by China and Japan.
How will the drought affect the backbone of the industry?
Freight shipping costs are already steadily rising, with the drought being a major contributing factor.
Freight coming in to the East Coast is already seeing a rise in delays, with the Charleston Port leading the pack.
Container freight activity will pick up in the Suez Canal, which is a longer route compareed to the Panama Canal. Obviously, this will also cause some delays.
Companies counting on the timely arrival of goods for the holiday season should be prepared for those delays.
In other words, look for the freight recession to dig its heels in a bit more, as the rise of freight shipping costs become yet another reduction of fees for freight brokers and carriers.
