For months, the problems at the Panama Canal have been reported on, and for months, it’s been a backburner story for many national news outlets. If the backup of vessels doesn’t resemble the ocean parking lots we saw at ports around the world during COVID, any potential in the slowdown in trade is a nothingburger. 

Why? Because the consumer is not in a buying frenzy anymore and inflation is taking its toll on the purse strings. 

But for shippers, the Panama Canal is a problem, because even with the decrease in twenty-foot equivalent units, traveling on the waterway superhighway — the Panama Canal — has slowly turned into a rubbernecking nightmare.

What we are seeing at the canal today is the equivalent of four highway lanes merging into one. The decrease in the number of vessels able to traverse the canal each day coupled with the lighter loads has led to this slowdown. With no measurable rain in the foreseeable forecast, the congestion will continue.

The situation recently garnered headlines and the mainstream media covered the situation in a rapid series of reports, but they have since moved on. While it’s back off the news checklist, the one-off reports are the equivalent of the “nothing to see here” scene from “The Naked Gun.” With the flow of trade, this congestion takes time to build up and dissolve.

American Shipper asked Sea-Intelligence to drill down on the schedule reliability of vessels from Asia to the North America east coast through the Panama Canal. You can see the slowdown trend. At first, at the beginning of 2023, the reliability was trending higher than in 2018 and 2019. This was great, showing a return to normalcy. Reliability was briefly better from January through March, but in April, you started to see the descent of consistency for this year.

“You also see a deterioration of the Schedule Reliability through the last three to four months,” said Niels Madsen, vice president of product and operations at Sea-Intelligence. “Since it peaked in April 2023 at 46.2%, in July, it is down to 38.8%. It should be kept in mind that there may be other contributing factors, and not solely a Panama Canal issue.”

The average delay can also be tracked of all vessels, where April 2023 showed an average delay of late vessels of 1.73 days. In July, the delay increased to 2.48 days.

The Panama Canal Authority (ACP) told American Shipper it will extend water restrictions for at least another 10 months in an effort to conserve water if rainfall patterns do not vary significantly from projections. The Panama Canal is quickly becoming a major choke point. The data you are reviewing does not include the 160-plus ships that were waiting in August. Reliability for the month of August for shippers on this route took a hit. It’s common sense to know the trend line of reliability is going down.

Take a look at the water levels of Gatun Lake (below right), which feeds the Panama Canal. They are at a four-year low. A canal lock uses 50 million gallons of water when a single vessel traverses the canal.

The Panama Canal is a critical trade link for U.S. shippers heading to Gulf and East Coast ports. The U.S. is the largest user of the Panama Canal, with total U.S. commodity export and import containers representing about 73% of Panama Canal traffic. Forty percent of all U.S. container traffic travels through the canal every year, about $270 billion in cargo. U.S. energy and agriculture also use this waterway to transfer goods.

The Panama Canal is the preferred choice of U.S. shippers heading to the East Coast because it is faster than going through the Suez Canal. The shipping time for ocean cargo from Shenzhen, China, to Miami using the Suez Canal is 41 days. Traveling through the Panama Canal, which is more expensive, takes only 35 days.

“The Panama Canal challenge is mostly felt on the West-bound trades from the US to Asia as commodities are often heavy and price sensitive,” warned Goetz Alebrand, head of ocean freight for the Americas at DHL Global Forwarding. “Customers are seeking alternatives to avoid the Panama Canal. Going different routes is possible but usually takes an impact on transit time — longer transit time than through the Panama Canal. Our customers have largely stayed with the Panama Canal routings, but that could change in the future also if the carriers start to pass on higher canal charges.”

But could we be at a tipping point in terms of choosing the Panama Canal over the Suez Canal?  Could the delays at the Panama Canal now make the cheaper chicken — the Suez Canal route — make more sense? Does the extra price of using the Panama Canal justify any “time benefits”?

Alan Baer, CEO of OL USA, broke out the timeline. 

“From an importer’s standpoint: Shanghai to New York via the Panama [Canal] is $3,000 for a 40-foot container. Shanghai to New York for a 40-foot container going through the Suez is $2,900. While this lane might take a week longer, the potential delays in Panama now might even up the timing. From Southeast Asia, the Suez has historically been just as fast as the Panama [Canal].”

Paul Brashier, vice president of drayage and intermodal at ITS Logistics, tells American Shipper, “Right now, we are shifting resources to create contingency plans for trans-Pacific freight that is planning to be routed to the U.S. West Coast as opposed to U.S. Gulf and East Coast to avoid current weeks-long delays at the Panama Canal.”

This weather event will have a long-term impact on the canal, in which less revenue will be collected. Revenues, of course, are used in maintenance, repair and construction of the canal. 

The canal, flanked by two oceans, has water everywhere, yet not enough to provide normal transit. It’s like being stranded on an island with no ability to extract salt from the ocean water to drink. Mother Nature is the ultimate arbiter in this situation. Until it rains, the ACP has to rely on its communication and management to keep the flow of trade moving as safely as possible.

In times of crisis, it is how leaders deploy strategies that will determine their success or failure. Trade always finds a way to flow. It has to. The challenge presented at one trade route offers opportunity for another. Right now, we are at a point where leaders will need to make actionable decisions. Time is money and the value of that dollar is diminishing with each passing day because of inflation.

“I think there will be some realignment of supply chains and requests to switch the routing,” Baer said. “Some will choose U.S. West Coast gateways. Heavy cargo will for sure want Suez routings, and other companies may push some to the Suez and some to the Panama [Canal] to hedge their bets.”

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