2023 Panama Canal Drought: What Small & Medium-Sized Shippers Need To Know
The Panama canal is experiencing the largest blockage in recent years attributed to drought and lower overall water levels, a reality that many logistics professionals may or may not be feeling the direct effects of.
The latest news on the Panama canal is that it is currently experiencing its lowest water levels in years. As a result the usual inbound and outbound flow of shipping traffic is severely affected. 40% of global shipping container traffic passes through the Panama canal. The canal is a tried and true cost effective and efficient means of transporting large quantities of goods and materials from the East to the West and vice versa.
Realtime maritime trackers help to illustrate the current levels of congestion at the canal relative to other points in the world.
While congestion has begun to alleviate a bit, a recent Reuters report cited 125 booked and non-booked vessels were waiting to pass, a decrease from more than 160 ships two weeks ago, the canal is still likely to be affected for the next few months.
Is The Panama Canal Drying Up?
Dr. Ricaurte Vásquez Morales, Administrator of the Panama Canal Authority (ACP), spoke on a recent NBC News segment regarding the Panama canal drought and said lower water levels in the canal are a result of lower water levels in the Gatun Lake, the source of water for the Panama canal. The lower water levels in the lake and canal, he and the ACP reiterated in an authored paper earlier this month, are a result of El Nino. The canal is far from drying up but water levels of the Gatun Lake approaching historic lows are creating additional challenges for the canal and will be for at least the short term and medium term.
Panama canal officials said the organization faces “unprecedented challenges” during this time, alongside that the difficulty of the drought had “no historical precedence”, even compared with the last drought in 2019-20. Higher-than-average regional temperatures as a result of El Nino and the resulting weaker rainy season have exacerbated already low water levels for the lake and the canal.
How Does the Drought Affect the Panama Canal?
The most immediate result of the drought in the Gatun Lake and canal is the lower volume of ships that can pass through.
As of last week, more than 150 ships are waiting to cross through the Panama canal, a sizable increase from the average 90 ships per week the canal is used to seeing. Canal officials have resorted to using locks and channels to move more ships through the canal. Heavier ships are the most at-risk relative to lighter weight ships.
In addition, many companies are quickly working to find alternative shipping routes well in advance to minimize exposure to the traffic at the canal if at all.
What the Drought Means For Consumers
Consumers can expect the price of goods, already hit by 20-year high inflation according to the Bureau of Labor Statistics. With fewer ships passing through the canal and wait times for reserved ships to pass through the canal approaching 3 weeks.
The timing is precarious considering the race is on for stores to stock their shelves with the holiday season right around the corner. While all goods traded internationally that have an ocean import and export component to them will (?) be affected, heavier items like machinery, sporting goods, home goods and generally what can be called ‘heavy things’ will be the most affected as ocean transit is often the most effective means of transporting these types of goods.
2023 is an unusual year as many shippers’ data is likely reflecting. Demand for many was offset in Q1 and Q2 and projected to look variable or even decline through the end of the year. It’s a year where there isn’t as clear of a ‘peak season’ exacerbated by pressures in the canal.
What The Drought Means For Small & Medium-Sized Shippers
Without a significant meteorological change to the region, the drought and lower overall water levels in the canal could be affecting shippers for the next 6-12 months. While large shippers will often have dedicated and extensive resources to plan ahead and endure new costs and disruptions to delivery times, smaller shippers will be most exposed to these issues.
Small and medium sized shippers should be prepared for the following scenarios.
Delayed Transit Times & Penalty Fees
Accurately forecasting the proper delivery time of goods to their final destination will be the biggest challenge. While delays at the canal were estimated around 5-7 days, the aforementioned Reuters article at the top of this article is citing delays closer to 2 weeks a time of writing. For freight forwarders who have commitments or agreements to shippers for on-time delivery should expect penalty costs brought about by containers traveling through the canal.
Longer Routes To Final Destination
Shippers whose goods’ final destination is the East coast of the United States, might experience situations where goods will instead have to travel across the United States to reach their final destination. While less invasive relative to the points mentioned above, shippers should be prepared to consider situations whereby goods arrive in a West coast port and then have to traverse via domestic mode across country to final destination.
What Can Pricing, Business Development & Customer Service Teams Do?
Education and flexibility with customers will be the biggest asset during this period. Customers who have containers who will have containers passing through the canal should be solutions oriented and ready to anticipate customer needs with what will likely mean additional costs and delays for the reasons outlined above. Freight Right offers consulting services to these issues. Our team is prepared to advise and support on a myriad of issues and help other teams work through challenges like what’s currently happening with the Panama canal.
USTR's recent extensions to exclusions of imports impacted by section 301 tariffs protect some items through December 31, 2020.
As a response to growing fears of the COVID-19, President Trump issued a 30-day travel ban to and from Europe.