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Thursday, September 28, 2023

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Panama Canal Congestion Threatens US Trucking

Panama Canal officials have limited how many ships are able to pass through, and as a result the trucking industry will face major slowdowns.

These restrictions, according to the Panama Canal Authority, are a direct response to the low water levels in the canal caused by the drought. 

“Our supply chain is very delicately balanced,” said Danny Ramon, intelligence and response manager at Overhaul. “If one thing goes out of whack a little bit, it can throw the whole system into chaos. We saw that with the Ever Given in the Suez Canal a couple of years ago. That’s basically the same thing that’s going to be going on here.”

The Canal Authority found that 3% of all global maritime transits through the canal, and close to 72.1% of cargo passing through the canal either originating from or arriving at a U.S. port, making the United States the primary source of traffic.

“If we block up a major artery of international freight commerce, it’s going to have downstream effects on almost every link of the supply chain,” Ramon said. “When we look specifically at U.S. trucking, once there’s a choke point there at the canal, it means that choke points are just going to end up moving down the line.”

TD Cowen has been monitoring the drought conditions impacting the canal as well as the resulting supply chain bottleneck. 

“While shipping data indicates a pileup of ships waiting at the ends of the waterway, reports suggest that containerships have not been materially impacted in the U.S. East Coast and Gulf ports,” TD Cowen analyst Jason Seidl wrote in the report.

“Potential implications to ocean container rates will hinge on weather and reservoir replenishment, though ocean carriers are able to divert this bottleneck (via the Suez Canal) at the expense of an extra week of travel time.”

“Our belief is that the port throughput on the West Coast is in a really good state right now because overall demand is soft. So, if this were to happen a year ago, then this would just be exacerbated,” said Glenn Koepke, general manager of network collaboration at FourKites.

“There are no real issues for the container vessels,” said Christian Sur, executive vice president of ocean freight and contract logistics at Unique Logistics International. “But since the canal authority has said they’re going to be operating under this limited draft and a number of transfer dates, in another 10 months there could potentially be some conditions and delays.”

“The longer it goes on, the longer we’re dealing with the delay of goods reaching our shores, the more we’re going to deal with retail shortages and price spikes, especially going into the holiday season,” Ramon said. “It’s just a waterfall effect that, like I said, will go down through every link of the supply chain.”

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