Drought Hits the Panama Canal

How Climate change is impacting the Panama Canal – Halving the ship volume

Summary: The worst drought in Panama in since 19050 has forced the canal to reduce the number of ships transiting per day from 31 to 18.  This will increase shipping costs, increase transit times, and increase complexity in a rapidly evolving global shipping landscape.

The Panama Canal opened to ship traffic in 1914.  Prior to the canal opening, the routes between the east coast of the Americas and the orient were to move through the Suez Canal in Egypt, use a complicated land bridge in Central America, or sail around Cape Horn – the southern tip of S. America.  Cape horn is considered one of the most dangerous places for shipping due to strong currents, large waves and icebergs. To place this in perspective, prior to the opening of the Panama Canal, the trip around the Cape Horn would take about one month.  For example, a trip from New York to California would take 30 days instead of 60 because the distance was cut from 13, 000 miles to just over 5,000.

More than just a matter of perspective

In 2022, The Panama Canal experienced its highest ever annual volume of ships to pass through at 14,200, representing more than 500 million tons of cargo.  As a rule, the transit time from China to the Us west coast is about 20 days.  China to the US east coast is about 45 days, when shipping through the Panama Canal.  However, for companies located nearer the East coast than the west coast, they must determine how to move cargo from the ports of LA / Long Beach or Seattle across the nation.  When you ship directly into a US east coast port, the tradeoff is 10 days of additional transit time for several hundred dollars savings per box.

Shippers and consignees are now confronted with considering the impact of climate change on shipping lines combined with the ability to traverse the Panama Canal, a combination adding significant complexity to the annual sea freight contracting season this spring.

Options & Considerations

As shippers and consignees confront these evolving realities, strategic options are more critical than ever.   Consider these strategies:

  • The mix of volume moving all water vs. Mini land bridge (MLB)
  • The cost of rail (MLB) vs. transshipment.  Generally, cargo from 5 x 40’ boxes will fit into 3 x 53’ domestic trailers.
  • For high value cargo – is air freight an option?
  • Where are distribution centers located?  Are they optimized for the new realities?
  • Can you ship directly to a customer without unloading at a distribution center?

Perhaps the most important thing to consider is that prior decisions should be reviewed within the context of these new climate realities.  As a general rule, strategic flexibility has a cost that is offset over time with lower overall operational complexity, soft costs and hidden costs of delays and customer satisfaction.  In this brave new world, climate change must figure prominently in any supply chain strategy.

What’s Next

Additional Reading

Scroll to Top