Filenews 11 March 2024
More than 50 ships are queuing up to cross the Panama Canal these days – from propane tankers to cargo ships full of food. The climate crisis showing its teeth in the form of prolonged drought has forced canal managers to reduce the number of crossings, resulting in longer waits. Transit fees (tolls) paid by ships in the Panama Canal are currently about eight times more expensive than normal, according to a report in the Wall Street Journal.
About 7,000 miles away, ships carrying containers through Egypt's Suez Canal await naval escorts or avoid the crossing altogether, preferring to make a much longer journey around South Africa. Shipowners fear their crews could be endangered on the journey through the Red Sea by the Houthi attacks, which have continued unabated since November, with either missiles or drones.
Suez's problems are geopolitical, while those in Panama stem from climate. Both, however, are disrupting global trade. The volume of cargoes through the Suez and Panama canals has fallen by more than a third. Hundreds of ships have been diverted to longer routes, resulting in delays in the delivery of goods, higher transport costs and financial pressure on local communities.
Shipping companies are bracing for months of uncertainty on the two waterways, which together account for about 20% of global trade. Governments, central banks, ordinary consumers – they are all watching developments with concern, as they come at a time when high inflation is being fought. Despite the slowdown in the growth of the consumer price index, food prices are galloping.
Drought and Houthis
The Panama Canal is in the midst of one of the driest periods in the man-made waterway's century of operation. Officials hope the drought, which began in mid-2023, will end at the end of the dry season in May.
In Suez, some ship operators have suspended travel indefinitely due to strikes on merchant ships further south. The Houthis have attacked more than 50 ships since November, including a cargo ship loaded with fertilizer that sank in the Red Sea and another that led to three deaths.
According to a Pentagon official, the U.S.-led coalition's retaliation has destroyed about a third of the Houthis' military equipment (likely funded and armed by Iran).
The first shortcomings are felt
The problems have not yet had a huge impact on consumers, but businesses are starting to feel the pain. Tesla and Volvo halted vehicle production for up to two weeks in January due to parts shortages.
Some clothing companies have opted for their spring fashions to be delivered by air instead of sea to ensure they arrive on time.
At present, disruptions in supply chains are on a moderate scale compared to what happened in 2020 and 2021 due to the restrictive measures taken in response to the Covid pandemic. Daily fares on some routes between Asia and the U.S. then jumped to more than $20,000 per box, about five times higher than current levels.
Businesses have also learned from the supply chaos during the pandemic, and some have built up larger inventories to avoid running out of products.
Acute crisis, if the double problem is prolonged
But as more businesses return to pre-Covid practices of keeping minimal inventory and relying on on-time deliveries, they are more vulnerable to delays if congestion in the two channels persists. A few months left with problems raging in the two canals, they could cause a single global trade chaos, experts warn the WSJ.
"It's a landmark moment for consumers because they're used to globalization," Peter Sand, chief analyst at Norway-based shipping platform Xeneta, told the WSJ. "They are buying goods from everywhere at any time, so protecting maritime supply chains is paramount."
Ships that used to pass through the Panama Canal are now leaving the Gulf of Mexico to make deliveries to customers in China, Japan and South Korea. The journey heading west, through the canal and then across the Pacific, takes about 25 days.
naftemporiki.gr
