Panama Carnal drought, “We definitely get more inefficient supply chains.”
Peter Sand, Chief analyst of Xeneta talks with CGTN Europe on the Panama Canal congestion and its impacts on global supply chains.
Transcript
00:00 The number of ships allowed daily passage through the Panama Canal has been reduced further this month
00:05 after the country's worst drought in over 50 years.
00:08 Now under normal conditions, between 34 to 36 vessels per day travel through the waterway.
00:13 But that was cut to 22 this month, with a further reduction to 18 expected by February.
00:20 We're joined now by Peter Sand, he's chief analyst at ocean and air freight market analytics firm Xeneta.
00:27 Thanks for coming on Global Business Journal.
00:30 The number and the size of the vessels being allowed passage is being restricted.
00:35 What are the implications here for global trade?
00:37 We definitely get more inefficient supply chains.
00:43 We also get the less cargo flowing through this essential artery of global trade.
00:49 And in essence also we can see in Xeneta data that spot rates that went up by more than 11%.
00:57 Exceeding $3,000 on a key trade lane from Shanghai to Houston.
01:02 All in the immediate aftermath of that announcement say a month ago by the Panama Canal authorities
01:08 that they were now cutting significantly and deeper all than earlier announced.
01:12 You mentioned that route between Shanghai and Houston, but you know who
01:16 is this shipping route important to and what sort of cargo are we talking about?
01:23 It's very, very important for North American importers as it is their preferred trading
01:30 route for far eastern imports traveling to the US Gulf Coast and US East Coast.
01:35 There are obvious alternatives via the Suez Canal, but it's not the preferred option.
01:41 And it's anything that the American consumers want in terms of Christmas presents at this time
01:48 of year. But it can be furnitures, it can be apparel, it can be machinery at any point in
01:53 time of year. And also for South American exporters perishable goods from the West Coast to US East
02:02 Coast and also North Europe, reliant on easy transits via the Panama Canal. And that's
02:08 literally what they are not getting at the moment.
02:11 What about coal? What about some liquefied natural gas?
02:15 Without doubt, there are also limitations to those key commodities also transiting the
02:23 Suez Canal. But there is also, if I may point out, a specific loophole. There are a few
02:29 selected slots available for auction. And just on 15 November, we had the $4 million being paid
02:36 on top of the half million of normal transit costs for skipping the queue, you might say.
02:41 So there are options, but in essence, fewer cargoes and less loaded ships transiting for
02:47 more than half a year still to come.
02:49 OK, so if you've got the money, you can push yourself to the front of the queue. But in
02:53 general, these restrictions are causing congestion. That's already time and money. I mean,
02:59 is everyone waiting in line or are some of them taking those alternative routes that you
03:03 mentioned via the Suez Canal, which is also costing time and money?
03:08 Definitely. It's set a lot of container ship back some 600 to 800 thousand dollars per
03:16 transit. So this is a lot of money, even if you are not paying the extra, say, auction
03:22 price for it. But definitely, this is money that needs to be passed on to the end consumers,
03:28 you and I, in the end. And we have seen shipping companies already announcing extra
03:33 surcharges on top of normal freight rates for cargo cargoes transiting through the Suez
03:40 Canal, sorry, the Panama Canal. And it's about 300 to 500 dollars on top of the 3000 dollars
03:45 I talked about just before. So this is a significant increase.
03:48 And kind of the last thing that the shipping industry needs. I mean, it's been a really,
03:52 really tough time. Give us an idea. I mean, you've talked about the cost per transit,
03:57 but give us a ballpark figure about what this disruption is going to cost the industry and
04:02 who's going to pay. Is it going to be business or is it going to be consumers?
04:06 Let me bring you back a year and a half. If something like this happened during the
04:11 covid years, it would be an outright disaster because at that point in time, demand, especially
04:17 from North America, was ferocious high. Right now, I guess the only silver lining to the
04:22 current slow burning disaster is that demand is somewhat still down from from the covid years.
04:29 So so in the end, pass cost needs to be passed on. But we are definitely also seeing that of,
04:35 say, carriers. They are probably enjoying themselves because you must be aware also that
04:40 the shipping lines made a lot of money during the covid years. They have spent a lot of that
04:45 on new ships that are now entering a trade, any trade across the globe at a point in time where
04:50 it's not really needed. So there's downward pressure on rates. This may alleviate a little
04:55 bit of that and it may actually bring, say, more inefficiencies to supply chains that is actually
05:01 good for the shipping companies, but bad for the freight forwarders, bad for the importers and bad
05:05 for the consumers in the end. More expensive goods at, say, fewer selections and a higher price tag.
05:11 On that note, we'll leave it there. Thank you so much. Peter Sand. Peter Sand from Exelny, sir.