What Extended Panama Canal Disruption Means for Retail Supply Chains
Restrictions limiting vessel flow through the Panama Canal will be in place for at least 10 more months.
Only 32 vessels are permitted to move through the critical passageway each day instead of the usual 34 to 36, according to the Panama Canal Authority (ACP), which is extending the restrictions through July instead of the original Sept. 2 end date. The news comes as the peak shipping season gets underway for U.S. retailers.
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Monday morning saw 123 vessels queued at the Panama Canal, including 50 that booked a transit reservation and 73 waiting without an appointment. This is up from the usual 90 or so watercraft, the authority said.
However, 123 marks a decline from the 161 the authority reported on Aug. 10, suggesting improvements in cargo and commodity flow at the canal.
The waterway’s deputy administrator, Ilya Espino, has urged vessel owners to reserve slots ahead of time to avoid delays. Container ships get priority passage over dry bulk carriers carrying grain, coal and iron; liquefied petroleum gas (LPG) carriers; and other non-containerized vessels since they operate on more regular schedules.
Ships can’t exceed a depth of 44 feet because of the Panama Cana’s unusually low water levels. This means container ships, bulk carriers and tankers must ditch some cargo to meet depth requirements.
Wait times this month averaged 10.4 days for northbound craft and 9.3 for southbound, higher than the respective 6.6- and 5.6-day averages in July.
“So far, while general waiting times have increased, container ships have not been significantly impacted by the restrictions in the Panama Canal. Most ocean carriers have had to reduce the load on their ships, but so far that hasn’t had a significant effect on schedules and freight rates,” Jena Santoro, senior manager of supply chain risk at Everstream Analytics, told Sourcing Journal. “However, if container lines are forced to continue to load less containers, we could see issues for U.S. companies trying to replenish inventories ahead of the year-end holiday season, for everything from Christmas decorations to furniture and toys.”
Issues at the Panama Canal don’t seem to be affecting retail operations just yet, according to the National Retail Federation (NRF).
“NRF members have not indicated they have encountered significant delays due to the Panama Canal restrictions,” an NRF spokesperson told Sourcing Journal. “They continue to monitor the situation and work with their supply chain partners to address any issues that arise.”
Nate Herman, senior vice president of policy at the American Apparel & Footwear Association (AAFA), also noted that the collective’s members are closely watching the Panama Canal situation.
“The longer the water level concerns last, the more serious the impacts on our broader supply chains,” Herman said. “The Panama Canal is critical to the industry and the impact of climate change is clearly presenting itself in new ways, ensuring that businesses look closer at ways to mitigate both our environmental impacts and our operational risks.”
Everstream Analytics’ chief meteorologist Jon Davis expects the disruption won’t go away anytime soon because Lake Gatun, the water body that feeds the canal, is still far shallower than it should be.
The lake was 79.6 feet deep on Monday, below the 85.3 feet it averaged in August over the past five years. Davis doesn’t see any potential for near-term water level improvements because the drought is linked to El Niño, the climate pattern responsible for higher temperatures and less rain to the central and eastern Pacific Ocean.
Davis said El Niño should continue as an area of concern into 2024.
“The short-term forecast into early September looks problematic—a continuation of below normal rainfall across Panama and well above normal temperatures,” Davis said.
Many freight brokers advise clients who typically route cargo through the Panama Canal to use the Suez Canal instead. But there are other options, according to Glenn Koepke, general manager of network collaboration at FourKites.
For example, shippers could send cargo toward Chile’s Strait of Magellan or around the tip of South America, “but this will add significant transit days as well as operating expense for vessel operators,” Koepke said.
“The current approach for vessels that are too heavy is offloading the cargo and having it shipped via rail across Panama and then reloaded onto the vessel,” Koepke said.
Shippers could also use the West Coast ports, and then ship freight via truck or rail across the U.S., adding up to about two weeks to transit times.
