An ongoing drought is sapping the Panama Canal, forcing shippers to make difficult choices, Bloomberg News reports.
What’s going on: Ships “can wait in line for days or weeks, as low water levels limit the number of ships passing through the 50-mile waterway, carrying cars, consumer goods, fruit and fuel.”
- “They can pay millions of dollars to jump ahead in the queue, if a ship with a booked reservation drops out. Or they can sail an entire continent out of the way[.] … Each choice adds cost, at a time when governments around the world are struggling to tame inflation.”
- Panama typically enters its four-to-five-month-long dry season this month, and that’s likely to exacerbate the situation.
The impact: Shipping routes that avoid the canal can add “10 days to three weeks to the trip.” And the cost of jumping the line—which takes place via auction—“can be close to $1 million. Companies spent $230 million on auctions this year through Nov. 20.”
- Shipping firms are seeking to pass the extra costs to their customers, with several announcing “new Panama-related surcharges in recent months.”
Falling exports: Low water levels on the Mississippi River have led some American grain growers to ship via train to the Pacific Northwest and then to Asia.
- U.S. grain exports to Asia fell 26% from 2022 to 2023.
Next year: Many shippers have planned 2024 routes that avoid the Panama Canal, since “the rigid routes of container ships … make it more difficult to reroute them at the last minute.”