Once again, traffic jams for ships waiting in line at the Panama Canal due to yet another historic drought make headlines. In addition to the current draft restriction issued at the end of May, a special advisory was issued at the end of July to mitigate the impacts of the extended dry season and limit the number of vessels for the daily transit from 36 to 32, thus points out Rabobank. 

The delays and resulting cost increases could have a serious impact on North and South American agricultural trade, given the strategic location of the canal connecting the Pacific Ocean and the Atlantic Ocean. A temporary relief from traffic jams is expected in September, a slow month, before queues resume in October, as the fourth quarter is usually the busiest for agricultural trade. If the drought continues, lower production capacity, longer delays and higher costs are expected to impact growers' margins.

The current water level in Gatun Lake, which feeds the canal, is about a 7% lower than the average of the last five years. While this is expected to improve as the rainy season continues through the end of the year, it is likely to remain well below average as El Niño is gaining strength and significant drought is expected in northern North America. South and Central America for the remainder of 2023 and early 2024.

During the 2014-2016 El Niño event, the setting restrictions were not lifted until October. Therefore, we expect the current restrictions to remain in effect until the water levels in the Gatun and Alajuela lakes reach normal levels.

Impact on global shipping

Almost the 3% of the volume of global maritime trade transits through the Panama Canal, the majority of which are bulk carriers, followed by container ships, chemical and crude oil tankers, and liquefied natural gas carriers. Of these, only container ships have not suffered from the current increasing wait times for transit (ie 5-6 days in July and 9-11 days in the first three weeks of August, on average) because the Most container ships have reserved their transit slots well in advance.

Given the seasonally low level of activity in September, a temporary relief from delays is expected before queuing resumes in October during the channel's busiest months in QXNUMX.

If the drought continues to progress in the region, the current measures are expected to remain in place and have the following impacts:

Less transport capacity: Reservation restrictions will reduce the number of vessels passing through; the ships will also continue to lighten loads to meet draft reductions.

Longest delays: Vessels that are unable to obtain a reservation or have lost their reservation due to previous delays may have to wait up to two to three weeks for a new slot in the channel.

Higher cost: Increased waiting time for transit leads to increased vessel capacity. Therefore, spot prices, especially for the US East Coast to Asia route, are expected to increase. In the case of re-routing, there will also be additional costs associated with the additional two weeks of sailing the alternate route around Cape Horn. In addition, both the Panama Canal authority and the shipping companies have announced surcharges related to transit through the canal and may continue to implement or increase them.

Impact on trade

Over 50% of the tonnage passing through the canal is on the US East Coast-Asia trade route, followed by Central and South American routes. Agricultural products are one of the main commodities transported by the canal.

Chile and Peru

Chile and Peru are among the top ten users of the canal because a large portion of their fresh fruit exports are shipped to the East Coast of the United States and Europe. Due to its perishability, any delay directly affects the quality of the product and, consequently, the sale price.

For Chile, exports that transit through the canal have decreased in the last five seasons, but still They represent 48% of the country's total exports. September to December is not usually the high season for exports from Chile; therefore, the impact would be limited.

For Peru, 85% of its mangoes, blueberries, grapes, avocados and citrus are exported on average to the East Coast of the United States. The export of blueberries from Peru begins in September, reaching its peak in the months of October, November and December. Exports of other fruits occur a little later, peaking around January of the following year. If the drought continues, blueberries will be hit harder. Europe is the main destination for avocados. As the current 2023 season is almost complete and the next season starts at the end of February 2024, the impact on avocado exports will be limited.

Projections

If the drought continues in the coming months, the impact, which includes delays in shipments and increased costs, will be felt most intensely in agricultural exports that transit from the United States (grains and oilseeds) and the west coast of America. del Sur (fresh fruits from Peru). The impact would be limited for Brazil, and the country's grain and cotton exports could even benefit from higher demand.

The increased risk of climatic events, such as forest fires, floods, changes in water levels (for example, the Rhine River in Europe) and droughts, which disrupt global shipping, will bring more irregularities in schedules and increases in prices. costs across supply chains. The latter will lead to higher prices, putting pressure on producer margins and contributing to consumer inflation.