It affects bananas and plantains from Ecuador to Florida. Chickens and turkeys from Chile to northern Europe. Liquid Natural Gas from the United States to Asia. And all kinds of consumer products that China sends to the West.
The traffic jam that has been piling up on both sides of the Panama Canal is affecting world trade in a big way.
For months now, the queue for passage through one of the most iconic shipping routes on the planet has been getting worse. In late August, roughly 135 ships were waiting to cross the 82-kilometre waterway that connects the Atlantic and Pacific oceans, 50 percent more than would normally be there.
The cause is a protracted drought that has driven water levels down and forced canal operators to reduce the number of ships that can pass through its locks. As a result, giant container ships and tankers carrying dry goods, perishable items, and energy are sitting idle in the sea.
Just how bad this is – or can get – depends on what is moving, and where it is going. But it is surely giving more than one transporter “nasty flashbacks to COVID, when goods arrived with a massive delay, and fewer numbers than requested,” said Peter Sand, chief analyst for Xeneta, the ocean freight rate benchmarking and market intelligence platform.
“From a global perspective this is an annoying obstacle, but that’s when you have the whole world as your playing ground,” he said. “If you ship bananas out of Ecuador into Florida this is business critical because that is the one thing you do, and your only option is to go through the Panama Canal.”
And while this is not the first time that delays have occurred, the intersection of a variety of factors has a compounding effect that will not go unnoticed, especially as the high-demand holiday season approaches. For companies, it means higher freight rates and longer transit times.
“For you and I as customers, [it means] higher prices and fewer goods to choose from if it really goes south,” said Sand.
Completed in 1914 after an arduous process of hacking through jungle, the importance of the shortcut that connects the Atlantic and Pacific oceans has grown exponentially.
“It didn’t really become critical to the world economy until the 90s and then into the early 2000s, with the rise of China as the manufacturing hub for so many consumer goods,” said Andrew Thomas, an international business professor at Akron University, Ohio, who wrote a book called The Canal of Panama and Globalization.
In 2006, Panama made the “brave and smart move” to expand the canal, adding another set of locks that opened in 2015, said Thomas. Now, some 6 percent of the world’s marine traffic passes through the Panama Canal – or about 32 vessels a day. In addition to the shipment of food and dry goods, the expansion opened the door for massive tankers called Panamax ships carrying liquid natural gas to start using the shortcut.
“The concern a lot of people have is the containers. The bigger issue is about energy,” Thomas told Al Jazeera. “Since the US shale energy revolution with fracking, this has become the main way energy is moved from the east coast of the United States to China, India, Korea and Japan.”
Indeed, canal authorities heralded the advent of LNG travel through their waters in 2016 as marking the “start of a new era in cleaner, lower-cost energy”. But the issue of water levels soon began to rear its head, with another devastating drought that hit in 2019. This latest backlog could affect the cost of energy in those regions, said Thomas.
“It’s really an obstacle, especially for the North American gas exporters into the Asian markets,” agreed Sand. There are alternate routes, through the Suez Canal, for example, but it takes longer and will cost more. Even so, companies such as Houston-based Cheniere Energy announced in July that it did not make financial sense to wait to get through the Panama Canal.
“Right now the market in the Far East is not supporting it, and the waiting time, with us not being a priority customer, is just not worth us using it right now,” CEO Corey Grindal said at an LNG conference in July.
For the shorter haul trips of perishable goods stored in refrigerated containers, the picture is bleaker because of a lack of options. Fruit that isn’t frozen will likely go to waste, said Sand.
As Thomas notes in his book on the canal: “Water makes the whole thing work.”
The canal relies on rainwater to raise and lower the ships in the locks that connect the two oceans. But the canal competes with several other big users of freshwater – the Panamanian people, whose population has grown by almost 20 percent since 2010, along with agriculture and water-intensive industries, such as copper mines.
“There’s demand for water in Panama that exceeds what the supply is,” said Thomas.
Source: Al Jazeera.