The Panama Crisis of drought & congestion

The Panama Canal is a 77.1 km (48 mi) man-made waterway in Panama that connects the Atlantic Ocean with the Pacific Ocean. The canal cuts across the Isthmus of Panama and is a popular route for maritime shipping.

The Panama Canal is important for a number of reasons. First, it allows ships to avoid sailing around the Cape Horn, which is a much longer and more dangerous route. Second, the canal shortens the distance between many ports around the world, which can save time and money for shipping companies. Third, the canal provides jobs and revenue for Panama, and it is a major contributor to the country's economy.

The Panama Canal is also important for global trade. It is one of the busiest shipping canals in the world, and it handles a large volume of cargo each year. The canal is essential for the transportation of goods such as oil, grain, and manufactured goods.

The Panama Canal is a vital part of the global transportation system. It allows ships to travel between the Atlantic and Pacific Oceans quickly and safely. The canal is also important for the economies of Panama and other countries around the world.

The Panama Canal has brought significant savings to maritime shipping. Before the canal was built, ships had to sail around Cape Horn, which is a much longer and more dangerous route. The canal allows ships to save time and money by shortening the distance between many ports around the world.

The Panama Canal also saves money for consumers by reducing the cost of goods. The canal allows goods to be transported more cheaply between different parts of the world, which means that consumers can pay lower prices for goods.

In addition to the economic savings, the Panama Canal also has a number of environmental benefits. The canal reduces the amount of fuel that ships need to burn, which helps to reduce air pollution. The canal also helps to reduce greenhouse gas emissions, which are a major contributor to climate change.

Overall, the Panama Canal has brought significant savings to maritime shipping and the global economy. The canal has also had a positive impact on the environment.

Here are some specific examples of the savings brought by the Panama Canal:

• A ship traveling from New York City to Los Angeles can save up to 15 days of sailing time by using the Panama Canal.
• The average cost of transporting a container from New York City to Los Angeles is about $2,000 cheaper using the Panama Canal.
• The Panama Canal saves the global economy about $8 billion per year in shipping costs.
• The Panama Canal reduces global greenhouse gas emissions by about 16 million tons per year.

The Panama Canal is a vital part of the global transportation system, and it plays a major role in reducing the cost of goods and protecting the environment.

<The above section is done by Google Bard.>

Panama Canal News

NY Times reported this on 24 August 2023 and has explained how the drought has affected this key shipping route.

A combination of a developing and powerful El Niño, the warming of waters in the equatorial Pacific Ocean, and human-caused climate change are probably supersizing Panama’s recent dry spell. While El Niño acts as a multiplier, the drought was underway earlier in the year – February through April featured about 10 to 25 percent of normal rainfall in the area.

Gatun Lake, which forms a significant part of the 50-mile Panama Canal route and provides water to move ships through the locks, is now about three feet below normal. The level will start to fall quickly once the dry season begins in December, Paton said. Canal authorities have cut the depth limit for large vessels from 50 feet to 43.5 feet so they’ll avoid scraping the lake bottom. That has forced some ships to offload containers onto trains and pick them up on the other side of the passageway, adding to transportation costs. 

To conserve water, canal authorities are limiting the number of ships allowed to make the crossing to 32 per day, down from an average of 36 in normal times. They’ve also imposed weight restrictions on the vessels. Around 50 million gallons of water is required to move each ship through the locks. Only some of it is recycled.

This has limited the number and the size of the vessels that are able to use the canal.

From the screenshot above (taken on 24 Sep 2023), we can see a huge number of vessels waiting to use the Panama Canal.

Out of desperation, some of the shipping lines have resorted to paying a premium to jump the queue. Details can be found in the article below covered by Business Insider.

From the article above, shippers have to pay millions to jump the queue. The following is an extract of the news:

The Panama Canal has been hit by a serious drought this year, causing long transit times for ships. A shipper recently paid $2.4 million for a winning bid to jump the queue, according to one energy shipping firm. The congestion is closely watched because the canal is a key route for the US ahead of the holiday season.

The authorities do not expect any relief soon and this can turn out to be a growing bottleneck for the global supply chain.

Let us continue to monitor this.  This could have an inflationary impact on the supply chain.  Should we consider other options for delivery?  Should we take the longer route around Cape Horn?  This would lead to delivery delays, increase in supply chain costs and more challenges.  For perishable items, this would greatly limit the options and not many would have the financial muscles to pay the extra to jump the queue.

Let us monitor this closely and explore the various workarounds.