Panama: Crisis In The Canal

One of the world’s top cargo routes is warning of financial woes, once again raising concerns about the global supply chain. The Panama Canal Authority (ACP) expects to post an estimated $600 million to $800 million decline in revenue due to continued drought, ship size restrictions and a falling quantity of daily passages.

Some queue-jumping auctions go for $4 million,while  logistics companies such as Maersk have created a land bridge to connect Atlantic and Pacific ports in Panama.

For fiscal 2024, “toll revenues have been $100 million below each of the first three months of operation: October, November, and December,” says Ricaurte Vásquez, administrator of the ACP. If the trend continues, “and suppose we normalize by June, there would be a loss of approximately $800 million.”

The Panama Canal is not the only critical waterway facing troubles. As the US and UK continue air strikes on the Houthi guerrillas in Yemen, the Suez Canal is currently at 63% of passages compared to 2023.

Bulk carriers have seen prices stabilize at around $1,503 for a 40-foot container, according to the Baltic Dry Index. However, non-bulk carriers are seeing prices more than double from $1,521 in December to $3,777 in January.

This is likely to have a knock-on effect on the cost of goods and raw materials, reducing production and possibly impacting inflation.

The Panama Canal’s issues began in 2023 with the El Niño phenomenon, making October the driest month in recorded history for the canal basin. Despite spending $500 million to secure water supplies, doubts remain about the canal’s future capacity.

Auctions for passage spots have offset revenue losses and are expected to raise some $200 to $300 million. As Vásquez points out, auctions only work when  ships transit the canal. The waiting period for passage is currently two days, which is in line with historic norms. Thanks to the drought, daily passages are now restricted to 24, well below the norm at 36, and this will remain in place until at least April and the beginning of the rainy season, says Vásquez.