Fengkou financial reporter Shi Bingbing
Since the beginning of this year, the capacity of the Panama Canal has dropped significantly due to the ongoing drought caused by El Niño. According to the Financial Times, data from the ship-tracking website MarineTraffic showed that the number of ships waiting to pass through the Panama Canal reached 264, an increase of 16% from the same period last year.
The 80-kilometer-long golden waterway, which connects the Atlantic and Pacific oceans for global trade, currently provides about 180 sea routes, connects about 170 countries and regions, supports about 6% of global trade, and reaches about 1,920 ports around the world. Among them, the United States is the largest user of the Panama Canal, and the total volume of commodity exports and imported containers accounts for about 73.7% of the Panama Canal traffic.
The smooth operation of the canal has an important impact on the global economic pattern, but in recent years, there have been many major congestions in global shipping, the most serious being the "Changci" running aground in the Suez Canal in 2021. For the very moment, congestion on the Panama Canal continues, only this time the climate crisis is testing global commerce and trade.
Influenced by El Niño
264 ships "in line"
Taken together, the arid, dry, freshwater-consuming lock system are the two major causes of congestion in the Panama Canal.
On the one hand, the ongoing drought caused by El Niño has caused the Panama Canal to suffer from drought and drought unprecedented since records began in 1950. On the other hand, since the Panama Canal is a lock canal, ships pass by raising or lowering the water level to allow ships to pass on the river. Each gate releases about 2 billion litres of fresh water into the ocean, and one of the important sources of this fresh water is the local artificial lake, Lake Gatun, which is mainly replenished by precipitation.
Typically, a canal lock loses 50 million gallons of water every time a ship crosses the Panama Canal, and the level of Lake Gatun, which feeds the canal, has fallen to a four-year low due to drought. Vazquez, director of the Panama Canal Authority, said: "Over the past 20 years, rainfall has been declining. We are dealing with the climate crisis, and with our capacity at its peak, we must find new sources of water to store in the lake. ”
(1) Provided by Mr. Chen, interviewee of the Panama Canal
Since mid-July, the Panama Canal channel has been severely short of water, and its capacity has dropped significantly, resulting in an accumulation of ships queuing at the entrance to the canal. As a result, the Panama Canal Authority implemented water-saving measures in late July to temporarily reduce the number of Panamax bookings for the period from August 8 to August 21, from 23 to 14 per day.
Due to the reduced number of reserved passages, passing ships have to wait for long periods of time to pass through the canal. At the same time, the draft level of the canal has dropped, resulting in passing ships having to reduce their weight to move forward, and it is understood that not long ago, Evergreen Shipping's Ever Max was forced to unload 1400TEU of cargo in Balboa Port to meet the draft limit and obtain the right of way.
The maximum waiting time is 21 days
Existing shipping companies have added "congestion charges"
How important is the Panama Canal? There are six major shipping routes in the world today, namely the Strait of Malacca, the Suez Canal, the Panama Canal, the Strait of Hormuz, Turkey and the Bab el-Mandeb Strait. Among them, the Panama Canal connects the Pacific and Atlantic Oceans, with a total length of 82 kilometers, and about 15,000 ships pass through the canal every year, with a total load of about 330 million tons.
Two years ago, the cargo ship "Changci" ran aground in the channel of the Suez Canal, causing serious blockage of the river channel and attracting global attention. If the Suez Canal is the crossroads of the world's waterways, then the Panama Canal is the world's bridge, which is of great significance for connecting the Pacific and Atlantic Oceans, shortening transportation distances and times, and reducing transportation costs.
"The Panama Canal provides a convenient passage for shipping from the mainland to the Atlantic Ocean, especially the east coast of the Americas, and the routes from China to the Panama Canal mainly include the Caribbean route and the South American East route. Since the Panama Canal is a lock canal, cargo ships also need to queue up under normal circumstances, but this year's drought and dry water have caused long queues on both sides of the channel, and the congestion of the route is bound to affect the shipping schedule. Mr. Chen, who has been engaged in freight forwarding business for many years, told reporters. It is understood that due to the decline in the water level of the Panama Canal due to drought, the capacity of ships passing through has dropped significantly, and the waiting time for navigation has reached up to 21 days.
In recent years, global shipping has experienced several major congestions, especially the Suez Canal blockage in 2021, which led to skyrocketing container shipping prices. Will the Panama Canal jam also cause a significant increase in transportation costs?
The reporter interviewed several US freight forwarders, they said that due to several previous canal congestion, the number of containers and cargo ships has increased, coupled with the Fed's interest rate hike caused by the global economic malaise, demand has declined, and is currently in the stage of excess capacity and container boxes, has not yet shown a sharp rise in ocean freight.
MSK Maersk Price Breakdown Provided by interviewee: Mr. Chan
However, in the interview, the reporter learned that at present, shipping companies have begun to charge the "congestion fee" of the Panama Canal, taking MSK Maersk as an example, a 20-foot container charges $175. However, for cargo ships, if they continue to wait in the Suez Canal, in addition to paying a "congestion charge", they will also face losses caused by delays in cargo transportation.
Ship jams affect international logistics
Shippers may start looking for other routes
Drought has plagued the main shipping gateway for global trade since the spring of 2023, and Murillo, a meteorological and hydrological expert at the Panama Canal Authority, said the outlook for the Panama Canal is bleak because El Niño is expected to intensify further by the end of the year.
In recent years, affected by emergencies, canal congestion, port congestion and other incidents have continued to occur, which have a certain impact on global cargo transportation and trade. Among the blockages in the Suez Canal, the most serious was the grounding of the "Changci" in March 2021, which caused the entire canal to be blocked for six days, with a total of more than 300 ships waiting to pass, and more than 1,000 cargo ships circling the Cape of Good Hope in Africa.
Faced with the accumulation of ships in the Panama Canal, logistics company OL USA CEO Alan Baer said in an interview that shippers may have to start looking for other routes. "As it becomes increasingly difficult to reach the East Coast of the United States via the Panama Canal, importers may consider ships passing through the Suez Canal." Bell said this is an effective solution for shipments originating in the ASEAN region and parts of southern China, although for northern China and North Asia, shipping through the Suez Canal could add an additional 7-14 days.
Chen Weijie, a researcher at Shenzhen Institute of International Maritime Research, said in an interview with Fengkou Finance, "The United States and China are the most important users of the Panama Canal, accounting for more than 90% of the cargo volume, if the Panama Canal is further blocked, the cargo trade from the United States to Mexico may change the mode of transportation, and the goods will be transferred to the eastern port of the United States for import and export trade through railways, roads and other modes of transportation, and the eastern port of the United States will be under pressure in the short term." The transportation of goods from the Asia-Pacific region to the eastern United States may be called at the western United States port for loading and unloading and transportation. ”
Chen Weijie further pointed out that compared with the Suez Canal, the core of cargo transportation of the Panama Canal is to serve the cargo transportation from the Asia-Pacific to the eastern United States and the western United States to South America and Europe, which can be replaced by other modes of transportation such as public water and molten iron in the United States, and has a certain degree of resilience to the impact of freight transportation and commodity trade markets.
The smooth operation of the canal has an important impact on the global economic pattern, although unlike the accidental blockage of stranded ships in the Suez Canal, the blockage of the Panama Canal is a natural cause, but it also reflects the global shipping involved in the whole body, and the blockage of shipping arteries has a decisive impact on international logistics supply.
"The global port congestion in 2021 led to a sharp surge in container freight rates, followed by the relaxation of epidemic prevention policies, the easing of port congestion, and the decline of container freight rates, which is not a sound economic and trade feature. In the future, it is necessary to enhance the resilience of the transportation network through the reconstruction of global trade and transportation network, so that the transportation failure of one node is not enough to affect the trade of the entire transportation network, so as to cope with the complex and changeable external environment. Chen Weijie said.