The Panama Canal crisis would increase product prices

The crisis stemming from water shortages in the Panama Canal will affect supply chains less efficient and more expensive.

Peter Sand, chief analyst at Xeneta (a price comparison platform that provides shipping companies with real-time shipping price data) recalled that the Panama Canal is very important for importers on the East Coast of the United States and the US Gulf Coast.

“We have more inefficient supply chainsalso less freight flowing through this key artery of global trade and, essentially, we can also see isolated data that reveals rates have increased by more than 11% crossing US$3,000 on key trade routes from Shanghai to Houston,” he told CNTG Europe.

Although the Suez Canal provides an alternative, Sand admits it is not a desirable route, especially in this time of heavy commercial movement.

Sand warned that, except for transiting container ships that insure their passage through reserves, some ships pay between $600,000 and $800,000 more per transit “which is a lot of money even if you don’t pay the extra insurance price at the auction.”

This situation, according to the expert, “is definitely a cost that must ultimately be passed on to consumers.”

It also indicates that the disaster is accentuated because demand is still somewhat low due to covid, so the cost has to be passed on to consumers.

“This can bring more inefficiencies to supply chains, which is actually good for shipping lines but bad for freight forwarders, for importers and for consumers. In the end, there will be more expensive goods,” he emphasized.

For their part, bulk carriers anticipate delays in grain shipments until 2024 due to the Panama Canal crisis.

Bulk carriers tend to be at the back of the queue, as they usually seek transit slots only a few days before arrival.

Although grain prices have fallen from their 2020 highs, higher transportation costs will be passed on to grain and oilseed importers buying for human and animal feed.

“Commercial companies are finding ways to solve the problem, but it’s certainly costing the end user more money,” said Dan Basse, president of consulting firm AgResource Co. from Chicago.

Mark Thompson, senior trader at Olam Agra, points out that the grain trade and the bulk carrier segment will be the last clients to go through the Panama Canal, so he is not pinning his hopes on this route at the moment.