Causes of the Backlog
A massive backlog of over 200 ships is currently stuck on both sides of the Panama Canal, waiting for weeks to cross due to a serious drought that has forced authorities to limit the number of daily transits to 32 in order to conserve water. The drought has led to lower water levels, causing massive shipping congestion at the key trade route. The Panama Canal relies on a large supply of water, which is dwindling due to the ongoing drought.
Impact on Global Supply Chain
The delays at the Panama Canal are expected to result in a loss of $200 million in revenue for Panama. The traffic jam is affecting mainly bulk cargo and gas carriers. The traffic restrictions may remain in place until the end of the year, further impacting the global supply chain. The current wait time to cross the canal is around 21 days. The massive pileup is a result of water conservation measures the Panama Canal Authority deployed in late July due to drought.
Effect on US Grocery and Parcel Prices
The delays at the Panama Canal could cause a spike in US grocery and parcel prices as extra fees are added to shipping costs. The restrictions on vessel transit and the maximum number of passing vessels per day could add more pressure on consumer goods prices, according to maritime firms and experts, as delays and extra fees add to shipping cost.
Possible Solutions
To address the growing backlog, the Panama Canal Authority has temporarily reduced the number of daily transits to approximately 32 for all ships with and without reservations. They have also encouraged shipping companies to enter into the lottery system to gain reservations. In addition, the Canal Authority has implemented water-saving measures such as cross-fillings, cross-spilling, and short chamber lockages in the Panama locks, increased the use of water-saving basins in the Neopanamax locks, minimized direction changes between northbound and southbound transits in Gatun locks, maximized tandem lockages, and suspended hydroelectric power generation.
However, the current backlog is likely to take months to clear, and shippers are urged to start planning now. As a result, some shippers are looking for alternative routes to bypass the Panama Canal delays and avoid the growing costs associated with the congestion.
For more news & facts about the Panama Canal, we recommend PanamaCanalFacts.com