The Shipping Industry Reckons with a Drier Panama

(Photo by Victor Puente on Pexels)
(Photo by Victor Puente on Pexels)

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This time it’s the Panama Canal’s chance to play global supply chain bad boy.

This year, a severe drought in Panama has led the local water authority to impose progressively more onerous restrictions on ships using its famous canal. While the situation isn’t quite as dramatic — or as memeable — as when the Ever Given wedged itself across the Suez, it’s potentially more sinister as extreme weather conditions track with climate change.

Panamenacing

Countries around the world have seen record temperatures this year, and Panama got off to a bad start rainfall-wise. From February to April, the region near the canal experienced monthly rainfall up to 75% lower than normal, and the year has remained stubbornly dry even as Panama entered its usual rainy season in May.

The ACP, the government organization that governs the canal, has been imposing increasing restrictions most of the year and has now limited both the size of the ships using the canal and the number of crossings:

  • According to the Financial Times, that queue was 264 ships long on Friday, which is 16% longer than the line was this time last year — and those are just the ones that are still light enough to go through.
  • Delays could have a big impact on shipments of fruit and vegetables from the west coast of South America to Europe, which data provider MDS Transmodal told the FT accounts for 77% of trade between those two regions. A consultant at MDS Transmodal told the FT that longer, costlier routes for fruits and vegetables “definitely doesn’t help food inflation.”

While some European countries have seen their inflation rates cool, the UK’s food inflation sat at an uncomfortable 17.4% in June.

New Abnormal: Jonathan Roach, an analyst at ship broker Braemar, said the shipping industry will have to learn to accept a less capacious canal. “Engineering-wise, I don’t know if there is a solution,” he said, adding: “It’s likely to be a continuing problem. It’s going to happen again and again.”