Beginning this Sunday, the Panama Canal, a vital trade route for U.S. shippers to Gulf and East Coast ports, will impose restrictions on large ships due to low water levels resulting from a persistent drought.
This will lead to a significant decrease of around 40% in cargo capacity for certain container ships, increasing costs for shippers and impacting various sectors of the U.S. economy, including agriculture, energy, and retail.
The Panama Canal handles approximately 40% of all U.S. container traffic annually, representing a significant portion of the $270 billion worth of cargo transported through the canal each year.
“The Panama Canal relies heavily on traffic to and from the United States,” affirmed Ricaurte Vásquez Morales, Administrator of the Panama Canal. “Around 73% of our canal traffic involves a diverse range of commodities and containers destined for the U.S. We maintain regular communication with our customers and cargo owners to keep them informed about the prevailing conditions,” he further emphasized.
The Panama Canal is the preferred choice for East Coast trade due to its shorter transit time compared to other options.
Shipping cargo from Shenzhen, China, to Miami, Florida, via the Suez Canal takes 41 days, whereas using the Panama Canal, albeit at a higher cost, reduces the transit time to just 35 days.
Concerns have been raised by U.S. shippers and industry experts regarding the potential imposition of additional freshwater surcharges due to the decline in water levels.
Already, fees have been increasing, with the Panama Canal implementing a fixed charge of $10,000 per transit in 2020, in addition to a toll based on a percentage of the vessel’s carrying capacity. This toll can range from a minimum of one percent to a maximum of ten percent.
The Panama Canal serves as a rapid and cost-effective route for transporting agricultural commodities, particularly grain, from the port of New Orleans to China.
However, due to the current low water levels, the reduced cargo capacity will lead to higher transportation costs for all types of shipments, including U.S. agricultural exports in both eastbound and westbound directions. The Agriculture Transportation Coalition, representing U.S. ag exporters, expressed these concerns to CNBC.
The United States is the largest user of the Panama Canal for transporting energy commodities, including natural gas. Around 26% of canal transit involves LPG (liquified petroleum gas) carriers, which transport liquified natural gas, liquified petroleum gas, compressed natural gas, and liquefied chemical gases in bulk.
While LNG vessels are unaffected by the current restrictions, the congestion caused by lower water levels and increased small vessel traffic has raised concerns for LNG Allies, the U.S. industry trade group.
They have expressed worries about future congestion, rising costs, and the need for alternative trade routes that may lengthen voyage times.
U.S. trade plays a significant role in the traffic of the Panama Canal, a century-old shipping route that connects the Atlantic and Pacific Oceans.
The United States is the main source and destination of the canal’s traffic, accounting for approximately 73% of the total. The canal serves as a crucial trade gateway for U.S. shippers, particularly for the Gulf and East Coast ports.
However, the long-term future of the Panama Canal is currently under threat due to a “severe” drought. Ongoing drought conditions have caused low water levels, leading to restrictions on large ships.
As a result, cargo capacity on some containerships may decrease by around 40%. This restriction not only makes it more expensive for shippers to transport containerized goods but also affects key sectors of the U.S. economy, including agriculture, energy, and retail.
The Panama Canal handles a significant portion of U.S. container traffic, with approximately 40% of all U.S. container traffic passing through it annually. This represents a substantial volume of cargo, amounting to roughly $270 billion each year.
The situation is closely monitored by the Panama Canal Administrator, who keeps in constant communication with customers and cargo owners to ensure they are aware of the current conditions and challenges.
Source : cnbc.com