Traffic Congestion at Panama Canal Amid Dropping Water Levels
This bottleneck poses a considerable challenge to the global economy, which has already been grappling with supply-chain disruptions. Particularly concerning for American businesses, approximately 40 percent of U.S. container traffic relies on the Panama Canal for seamless connectivity between the Atlantic and Pacific Oceans. This congestion has driven up shipping costs and caused delays in the transportation of goods, coinciding with the preparations for the holiday season.
Worsening situation
Regrettably, the situation may worsen in the coming months. Steven Paton, the head of the environmental monitoring program at the Smithsonian Tropical Research Institute, has expressed concerns about the upcoming dry season, where even stricter restrictions on ship transits are anticipated.
To conserve precious water resources, canal authorities have reduced the daily limit of allowed ship transits to 32, down from the usual 36. They have also imposed weight restrictions on vessels, given that it takes around 50 million gallons of water to move each ship through the locks, with only partial recycling in place.
Congestion ahead
Normally, there are up to 90 ships awaiting entry into the canal, but this number has swelled to over 120 this week, with reports of up to 160 ships waiting earlier in the month. This congestion further exacerbates the global supply-chain challenges caused by the Russian invasion of Ukraine and the ongoing COVID-19 pandemic, according to Abe Eshkenazi, CEO of the Chicago-based Association for Supply Chain Management.
While Panama typically experiences a lengthy rainy season, this year has been one of the driest in recorded history, with the canal region being heavily affected. High-pressure heat domes have stifled rainfall across the Caribbean and Central America, leading to increased evaporation and higher water temperatures in the canal's lakes.
El Niño
A combination of El Niño, warming equatorial Pacific Ocean waters, is amplifying this dry spell. The drought was already evident from February to April, with only a fraction of the usual rainfall occurring.
Gatun Lake, a critical component of the Panama Canal route, is currently three feet below its normal level. As the dry season commences in December, this level is expected to decline rapidly.
In response, canal authorities have reduced the depth limit for larger vessels from 50 feet to 43.5 feet to prevent scraping the lake bottom, necessitating some ships to offload containers onto trains for later retrieval, adding to transportation costs.
The congestion at the canal is affecting various types of vessels, from tankers carrying liquefied natural gas to those loaded with toys and auto parts.
Alternative options
Manufacturers seeking alternatives face limited options, as rerouting through the southern tip of South America or the Suez Canal would incur additional costs and longer transit times.
While some U.S. companies have begun near-shoring production to countries like Mexico, these are long-term investments that require extensive infrastructure development. Shifting production from China would necessitate a significant increase in trucking and warehousing capabilities, according to Eshkenazi.
Train line
Mexico's president, Andrés Manuel López Obrador, has proposed a 180-mile train line across the Isthmus of Tehuantepec as a potential alternative to the canal, but this project is still under construction.
In other news…
It's important to note that the expanded Panama Canal, designed to accommodate larger vessels known as neo-Panamax, has already welcomed its first official voyage. This expansion, while over budget and behind schedule, is essential to modernize this vital trade route and double its cargo capacity. Over 170 neo-Panamax ships have already booked reservations in the expanded locks, opening up new trade routes.
The current congestion at the Panama Canal is a significant concern for the global logistics industry, and we continue to monitor the situation closely to minimize disruptions and provide the best solutions for our clients in this challenging environment.
Reach out to us today to see how your shipments may be affected: info@proboxx.io