How big is the congestion of ships in the Panama Canal really and what economic impact does this have?

A video of dozens and dozens of ships floating around the Panama Canal, waiting to cross it, attracted widespread attention last week when it circulated on social networks.

The picture is not unprecedented, as anyone who has flown to Panama City has often been able to observe groups of ships waiting their turn to sail from the Pacific to the Atlantic, or vice versa.

What stood out on this occasion was the number of boats: this Monday it was 132, adding those on either side of the canal, when “under normal circumstances” the figure is 90, This is according to a statement from the Panama Canal Authority (ACP) to BBC Mundo. By Wednesday, that number had already dropped to 124.

The majority are general cargo bulk carriers such as coal and iron ore, or some gas carriers that could not reserve their berths for transit because they typically know their routes at short notice, unlike most container ships.

“The Panama Canal is a complete mess these days. Queuing for twenty days is unprecedented at this time of year,” Øystein Kalleklev, executive director of the Avance Gas company, told the paper last Friday. The Wall Street Journal, who estimated that more than 200 ships were waiting that day.

However, this Wednesday, the channel’s official data showed that half had waited no longer than three days to cross.

Another 15 had been in the area for more than a week and only one of them had been waiting for clearance for 14 days. The ACP calculates that for this month as the average waiting time It will be between 9 and 11 days.

“The problem is that when you see the number of ships from the air, it looks like they will all pass through the channel, and although they are the majority, this is not always the case. There are others who go to port and others who are anchored in the area and are only waiting for supplies, fuel supply, crew change…’, he qualifies George Quijano, Former channel manager.

The person who directed the ACP between 2012 and 2019 assures that he has seen images similar to the current boat jams in the past, but he nevertheless acknowledges that the reason is different this time.

“These tail levels (of ships) we had already developed for maintenance reasons in the canal, but what I would say is unprecedented is that this time It is a forced situation due to the scarcity of water.”he tells BBC Mundo.

Lack of water

Quijano points out that another cause of this congestion is that the demand to pass through the canal is slightly higher this time of year, mainly due to the ships carrying goods to the US East Coast – 70% of what goes through the channel, has its origin or destination in this area – for the purposes of the following black friday o Black Friday shopping at the end of November.

But in fact, the main reason for this congestion is the measures and restrictions put in place by the canal to cope with the severe drought which – accentuated by the El Niño phenomenon – has implications this year for Panama and, consequently, for the functioning of its infrastructure.

This is because it is a channel for the transportation of fresh water, so it depends on the rain to be obtained the 200 million liters you need per barrel to lift his locks and make him go to the other side.

According to data from the ACS, the area around the canal is experiencing one of the two driest years on record in the country, with rainfall this year falling between 30% and 50% below average.

Although the situation improved somewhat after the rainy season started in May, the two artificial lakes that supply water to the canal – Gatún and Alajuela – have not yet recovered after recording their lowest levels in recent years.

“The current seriousness along with its recurrence It has no historical precedents.” the institution announced in a statement at the end of July.

“The channel is very concerned about the drought,” Erick Córdoba, water manager for the ACP countries, told BBC Mundo in July.

“Some restrictions have been introduced in other years in the dry season [de mediados de diciembre a mediados de mayo]But the unusual thing is that we now keep them in the rainy season and we will certainly do so until next year’s dry season,” he added.

In addition to reducing the draft – the depth reached by the submerged part of the ships – from 15.24 m to 13.41 m as in previous years, another measure taken for the first time to save water was to limit the number of ships from 38 to 32. ships that can sail per day.

Also, two weeks ago, the number of reservation places for ships wanting to cross the channel was reduced from 23 to 14, allowing more ships to pass through without prior reservation to ease the current congestion.

Economic impact

As expected, these measures already have a clear economic impact on all players associated with the channel.

The first is the ACS itself, whose manager Ricaurte Vásquez acknowledged a few weeks ago that its revenues will fall by some $200 million in 2024 due to the restrictions.

The second affected group are the companies that own the ships that, in some cases they have begun to explore further – and expensive – routes– such as the Suez Canal or around the Cape of Good Hope in South Africa.

Those who continue to use the Central American channel face additional charges for each day of waiting.

“A 15,000 TEU container ship (the unit of measurement for a 6.1 m2 container capacity) costs about $45,000 a day to rent, so if you have to wait there, you can get a lot of money up to 40 or 50% more of what it would cost to cross the channel,” illustrates former administrator Quijano.

Another option for these companies is to participate in auctions to acquire one of the limited reserve positions that will allow them to guarantee their fastest throughput, but in some cases have been paid nearly $1 million.

In addition, it should be borne in mind that the current restrictions on the maximum draft of ships also oblige them to limit the cargo they can transport via the route and therefore to look for alternatives.

“A ship can then go to the port and take down about a thousand containers, which is not unusual, put them over the rail and pick them up on the other side. That could cost you about $1 million, which can translate to an additional $750 per container. someone has to take over.” To explain.

That ‘someone’ is, as can be foreseen, the final consumer of the transported products.

The extra $750 is split between the cost of each item in that container, making the final retail price more expensive, with a greater impact for large items (such as electrical appliances or large furniture) because fewer units fit in that container. Quijano explains.

The destination of these products is not limited to North America, but reaches almost the entire planet.

According to Bloomberg, 40% of containers shipped from Asia to Europe also pass through the Panama Canal. In total, they pass this point every year about 500 million tons of cargo, according to data from the ACS.

What can happen?

The weather forecasts are not optimistic and point to less rainfall than usual for the rest of the year, which would cause the canal to extend its restrictions.

The lack of rain is crucial for the continuity of activities in the canal, but also for the water reaching the homes of the Panamanians. more than half of the country’s population stored for consumption from the same two reservoirs as the channel.

If this situation continues, Córdoba of the ACP recognizes, “It is not sustainable to continue to grow in our two activities of drinking water for the population and the transit of ships. Our biggest uncertainty right now is if we don’t recover or if it doesn’t rain enough, because if it does We are going to have a very difficult dry season in 2024.”

For Quijano, the most urgent and immediate solution is to find a new water reserve that can store more fluid during the rainy season, as Panama is the fifth country in the world where it rains the most.

In this way, they could no longer depend solely on Gatún and Alajuela, two reservoirs built between 1913 and 1935 when Panama’s population was almost ten times smaller and the number of canal passages was less than half of what it is today. it, he says. .

“These two reservoirs are definitely not enough to supply the population and meet the growing demand for the canal. We’ve researched and researched, and there’s no other option but to look for another reservoir to continue growing. We must start now!” concludes the former driver emphatically. (JO)

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