MercoPress. South Atlantic News Agency

Panama Canal drought hitting world trade

Things may get worse by February if water levels remain low

Global trade through the Panama Canal is being severely disrupted by a drought affecting the man-made corridor, which could force shippers to choose other, more costly routes, it was reported. The historic waterway in Central America connecting the Pacific and Atlantic Oceans handles about 5% of international seaborne trade.

In the current scenario, ships have faced wait times of up to three weeks to pass through the canal. Cruise ships and freighters carrying consumer goods typically book passage well in advance and have not faced long delays. However, those carrying bulk commodities generally do not book passage. Available slots are auctioned, but demand is exceptionally high. Some slots have fetched US$ 1 million or more, unsustainable costs for the traditionally low-margin grain trading business.

The crisis coincides with the peak season for American crop exports, with higher costs threatening to dent demand for US corn and soy suppliers, who have already ceded market share to Brazil in recent years, Reuters explained.

Some US grain exporters have rerouted by train to Pacific Northwest ports their shipments originally scheduled to depart from the Gulf of Mexico, albeit at a cost. Only five US grain ships bound for Asia transited the Panama Canal in October compared to 34 ships last year, the US Department of Agriculture (USDA) said. Although grain prices have come down from 2020 highs, rising freight costs will impact grain and oilseed buyers.

The Panama Canal Authority restricted vessel transits as a lack of water hampered canal operations. It cut daily transits to 22 vessels from the usual 35 and is planning a further reduction to 18 by February which could even be stricter if water levels remain low.

Protracted disruptions at the canal could continue to impede grain shipments well into 2024 when the region’s wet season begins to recharge the reservoirs and normalize shipping in April or May.