Detours around the bottleneck at the Panama Canal may lead to inflationary pressures

The Panama Canal, a crucial waterway for global trade, is facing a shutdown due to drought. The reduced water levels have limited the number of ships that can pass through, leading to long waiting times and higher costs for ship operators. The situation is expected to worsen in the coming months with the onset of the annual dry season, leading to reduced capacity and higher costs for shipping companies. The Panama Canal Authority has reduced the number of ships allowed through to only 18 per day, half the normal amount, and some ships will have to carry less cargo due to draft restrictions.

As a result, ship operators are facing increased costs and having to make difficult decisions. Some are opting to pay millions of dollars to move forward in the queue, while others are taking longer detours around the southern tips of Africa and South America or through the Suez Canal. The higher shipping costs are expected to have a trickle-down effect on consumer prices in the long run.

The shutdown of the Panama Canal has already impacted various industries, with some American farmers choosing to transport their grain to Asia via alternative routes. Additionally, shipping companies are already booking alternative routes to bypass the canal for 2024, leading to longer transit times and higher costs that will ultimately affect consumers. The situation has also affected the shipping of products such as fresh fruit from Chile and Peru, with peak seasons coinciding with the canal’s problems.

Source .