Panama Canal Congestion: Implications for Global Trade and a Solution to the Problem

When it comes to moving freight across the world, the Panama Canal is one of the best improvements to global shipping. The Panama Canal comprises a series of locks, channels, and artificial lakes. It stretches approximately 50 miles (80 kilometers) across the isthmus, connecting the Atlantic Ocean to the Pacific Ocean. Recently, the Canal has been struggling with the impact of climate change.

The Drought’s Grip on the Canal

A severe drought has affected the region. The lack of rain has reduced lake water levels, supplying the canal with the water needed to operate the locks. As a result, the Panama Canal Authority has had to implement restrictions, reducing the number of ships that can transit the Canal by 20% to 32. They have extended these restrictions until at least September 2nd. Not only is the number of ships that can transit the Canal lower, but the draft of these ships is lower as well. This means that the ships that are allowed to transit the Canal can take less freight than before.

Because of the popularity of the route through the Panama Canal, the waiting time has been up to 12 days already in the past year, but now the waiting time has skyrocketed to 21 days. The Canal Authority will probably not lift restrictions anytime soon. More dry weather is expected to hit the region later this year. 

The Domino Effect on Global Trade

The implications of the canal’s congestion are far-reaching. With over 154 vessels waiting to cross, the average wait time has skyrocketed to 21 days. Considering that 40% of all US container traffic travels through the canal annually, the delays have a cascading effect on global trade. The US, the largest canal user, is particularly affected, with commodities worth about $270 billion passing through the canal yearly.

Containerships looking for alternative routes can lengthen their journey by 2000 nautical miles and go through the Suez Canal or go around Africa, which adds 5000 nautical miles, adding both time, fuel costs, and carbon emissions…

Furthermore, the congestion has led to increased shipping costs. With fewer slots available for booking and vessels having to wait longer, shipping companies are incurring additional expenses. These costs, in turn, are passed down to businesses and consumers.

Looking to the Future: Alternative Solutions

The Panama Canal congestion underscores the vulnerabilities in our global supply chain. While the immediate cause is a natural phenomenon (drought), the crisis highlights the need for diversification and the development of alternative routes and solutions.

One such initiative is our PILA project, which aims to introduce a fully sustainable, zero-emission alternative shipping route for containers parallel to the Panama Canal. It will be the focal point of a system-wide efficiency upgrade that is driven by automation, containerization, digitization, technology, and connections to neighboring port facilities. Entirely electric and non-polluting.

About the author:

Martijn Graat

Martijn Graat is Zergratran’s Head of Content. He writes about trends and innovations in supply chain and logistics, and anything related to Zergratran