Escalating costs and delays caused by the Panama Canal’s worst drought for 70 years are affecting the world’s supply chains in the run up to Christmas.
Delivery company ParcelHero reports that the ongoing drought crisis will inevitably lead to increased costs and ongoing delays this Christmas. The amount of goods carried by vessels using the canal has been massively reduced and there are now severe cuts to the daily number of ships permitted to use the vital trade link.
David Jinks M.I.L.T., ParcelHero’s head of Consumer Research and former editor of Lloyds Shipping Index, commented: “Generally, around 36 ships are allowed to transit the canal a day. However, in recent months there has been a sharp reduction in the number of ships permitted to use the canal and, by 1st December, a limit of 22 sailings will be in force. Even stricter limits are planned, although a few extra slots are being made available for those willing to enter an auction to win an early transit.”
ParcelHero explained that this has resulted in some operators, who haven’t booked their transit of the canal months in advance, paying up to $4m at auction. According to bidding documents, Japan’s Eneos Group paid US$3.975m earlier this month.
David added: “Capacity has also been slashed. That means some massive Neo Panamax vessels are sailing at considerably less than full capacity.”
Shipping companies are being forced to either continue to use the 48-mile long canal, at higher costs and reduced loading, or re-route. Alternative routes are slower and costly, however, forcing shippers to impose new surcharges onto customers, and that will have a knock-on effect on consumers.
French carrier CMA CGM (the third-largest shipping line in the world) has already announced a forthcoming surcharge on all shipments transiting the Panama Canal, saying that, from January, as the booking windows for transiting the Neopanamax locks will be reduced by -30%, a $150 per TEU container Panama Adjustment Factor could mean increased costs of up to $750,000 per transit for standard Panamax vessels. Larger vessels are looking at an even greater increase in costs.
40% of container traffic to the US uses the canal, often carrying US brands made in China or components made in Asia for US assembly, such as microchips. Supply chains are being stretched which could lead to shortages of goods and increased prices as retailers fight over available stocks.
“More immediately, British businesses will be affected by delays and rising costs on goods sent from the US West Coast,” explained David. “The delays are also bad news for UK manufacturers and retailers exporting their products to destinations such as California via the canal.”
The Panama Canal is used to move petroleum, grains and petro-chemicals, so everything from energy to food to manufacturing prices could also be impacted in the run-up to Christmas.
“As peak season approaches, the consequences of the Panama Canal’s restrictions will become more apparent,” said David.