Drought Leads To Restrictions On The Panama Canal

As Central America experiences its worst drought for 70 years, the operators of the Panama Canal have been forced to impose severe restrictions due to low water levels. The canal is one of the world’s busiest shipping routes, and usually carries millions of dollars of trade between the Atlantic and Pacific Oceans every day.

Draught limits (the below the water line depth of vessels) are 50ft in normal circumstances when water levels are high. They had already been reduced to 44.5ft prior to mid-June, but now they will be reduced to 44ft. This may not sound too drastic, but it can significantly impact on the amount of cargo a vessel can carry, London Loves Business reports.  

Freight industry bosses have warned that this will lead to price increases, as more shipping voyages will be required to transport the same amount of cargo. Carriers have already raised their charges to reflect the restrictions and cover increased costs.

The east coast of the US and Asia will feel the immediate impact of this because they rely on the Panama Canal as their main trading route. Europe won’t be directly affected because goods to and from Asia usually travel via the Suez Canal that links the Mediterranean Sea and the Red Sea.

However, the knock on effect will eventually spread worldwide when goods manufactured on the east coast of America are ready to be distributed to the UK and beyond. This will add yet more pressure on prices, which have already increased rapidly due to the effect of the pandemic and the war in Ukraine.

Experts fear that this will drive up inflation once more, after the rate of growth has slowed in recent months. This will mean more pain for consumers and borrowers, who have already endured two years of the fastest price rises for 40 years.

ParcelHero’s Head of Consumer Research, David Jinks says: “The drastic new draught restrictions will reduce the volume of cargo that the largest, “neo-panamax”, container vessels can carry through this key waterway by up to 40%.”

He added: “That means cargo will have to be distributed among more ships, and that comes at a cost.  Already, several carriers using this route have hoisted their rates by between $300-500 per container to cover their increased costs. Ultimately, that means a spike in the price of consumer and industrial goods.”

“It’s the largest, neo-panamax, container ships that will be among the most impacted. The canal was only uprated to receive these large new ships in 2016. Reducing these loads or switching to smaller vessels will increase costs significantly.”

The Panama Canal was completed in 1914 and is 51 miles in length. Its route divides North and South America, and in normal times, it is used by up to 14,000 ships every year. The alternative route involves a lengthy and potentially dangerous voyage around Cape Horn.

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