Inside the World’s Largest Cargo Shipping Bottleneck Today | WSJ
Wall Street Journal
Sep 14, 2023
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#PanamaCanal #WSJ #Economy
The Panama Canal is running out of water, threatening to slow down the global supply chains and economies that depend on it. 40% of all U.S. container ship traffic passes through the canal, but now a severe, historic drought threatens the artificial waterway’s future. The disruption at the Panama Canal complicates all the logistical systems associated with cargo and commerce.
WSJ takes you inside the canal’s operations to understand what this means for the future of this vital shipping waterway and looks at how the canal is adapting to meet the need for more water.
- 0:00 Traffic jam in the Panama Canal
- 0:46 How the canal works
- 2:42 Impacts on cargo shipping industry
- 6:12 Ripple effects on global economy
- 7:47 How the canal is adapting
#PanamaCanal #Economy #WSJ
Transcript
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Transcript
(gentle music)
- [Narrator] One of the world's biggest traffic jams isn't on a road or highway.
It's at the Panama Canal.
By the end of August, a backlog of more than 200 ships waited for weeks to pass through the waterway.
Some were stalled for more than 20 days.
- We handle about $600 billion worth of merchandise through the Panama Canal.
- [Narrator] And this vital trade route is at risk.
The cause a historic drought.
The delays are rippling through the global economy as lower water levels cut into shipping times and bottom lines.
Here's how the Panama Canal is adapting to a drier planet and what those changes mean for the global supply chains and industries that depend on it.
(bright music) (explosion booming)
When the Panama Canal first opened in 1914, it was a game changer for the shipping industry.
- [Narrator] A little job connecting the Atlantic and Pacific.
- [Narrator] For the first time, cargo ships could save about five days traveling between the Atlantic and Pacific.
Bypassing this treacherous journey around the tip of South America.
By connecting two oceans, countries with vast distances between them could now compete in Global Trade.
But as the canal runs out of water, canal operators like Ricaurte Vasquez are scrambling to protect the root.
Vasquez is the head administrator for the Panama Canal Authority, which maintains and operates the waterway.
- We handle about 55% of all containers that go to the United States from Asia.
We do that in about , 13,000 transits per year, in regular times.
- [Narrator] Ships like this one are elevated to about feet above sea level through a system of locks and then lowered down on the other end.
Every time a ship passes through as much as 120 million gallons of water are lost to the sea that's enough to fill as many as 244 Olympic sized swimming pools.
All of that water comes from a system of freshwater reservoirs and rivers that depend on rainfall.
- It operates on fresh water, which is a major difference, compared to any other major waterway in the world.
We cannot pump water from the oceans into the lake.
- [Narrator] Even though Panama is the world's fifth rainiest country, it no longer has a steady supply of fresh water.
- Over the last 20 years, there is a downward trend in water precipitation.
We were 89 feet over sea level.
Nowadays, we are 79 feet over sea level, so that is a 10 feet reduction on the lake level in a relatively sizable lake.
- [Narrator] Lower water levels are a problem for cargo ships that sometimes carry as many as 16,000 containers at a time.
If ships are too heavy, they risk getting trapped in the canal.
- We have to introduce draft restrictions, which imposes that every vessel has to come lighter or with less cargo in order to sail through the Panama Canal.
- [Narrator] A ship's draft limit is the minimum depth of water a vessel can safely navigate.
This decides how much cargo a vessel can carry without getting stuck.
As drought conditions worsened over the summer, the waterway reduced its draft limit from 55 feet to 44.
- For a container vessel, on the average, every feet of draft represents about 300 to 350 containers.
- [Narrator] Since May, large container vessels like this one have had to reduce cargo loads by as much as 25%.
- That of course, means that we can offer less capacity to our customers as a result of this.
- [Narrator] Lars Oestergaard Nielsen is the Head of Customer Delivery in the Americas at Maersk.
The world's second largest cargo shipping carrier in terms of capacity.
- We actually sail extra ships to fill in the blanks, because we lose this six feet of water, we lose an opportunity to load some cargo.
(engine revving)
- [Narrator] Other ship owners are adjusting to the restrictions by offloading their cargo onto trains.
The boxes are unloaded from ships on one side of the canal, moved by rail and returned to the vessels before they continue their voyage.
But the system doesn't work for all cargo ships.
- If you are a bulk carrier, you taking coal, grain, there is no way to unload.
So you have to come light and you come light from origin, then you look for another port destination to increase your cargo and then take it to the final destination.
- [Narrator] In an effort to save even more water, the canal has limited the amount of vessels that are allowed to pass through each day, but fewer ships traveling through the canal, means longer wait times and higher tolls.
Shipping executives say container vessels, now pay around $400,000 to cross the waterway.
That includes a fresh water surcharge of more than 10%, meaning the lower the water levels, the more shipping companies have to pay.
- So far, what we have tried is to reduce from 36 transits per day to 32 transits per day.
So there are a lot less spaces to have an option for standby customers.
Of the 30 slots or 32 slots that we offer about 28 of them are already booked.
- [Narrator] Container ships that are able to book in advance, typically aren't impacted by these types of bottlenecks, but vessels that aren't on fixed routes, like bulk and gas carriers that move cargo on short notice face the longest wait times.
The delays for these types of non-book vessels increased 280% since June.
That's according to project44. A supply chain visibility platform.
On top of the delays, bulk carriers are also facing higher auction fees.
- There are now an opportunity to go into an auction where you can basically bid for getting access to these limited time slots that were not booked early.
Now those auctions have gone the highest I have seen and the highest number we have seen is a level of $900,000.
- [Narrator] To make up for the higher costs, ship owners are charging customers about $600 more per cargo container.
- There's no doubt that the canal is very important for global trade.
If the canal was not there then that would essentially add more cost.
It would add delays.
- [Narrator] Disruptions in the canal's operations could hurt southern hemisphere exporters and northern importers.
Brazilian meat, Chilean wines and bananas from Ecuador are regularly shipped across the canal. Copper from Chile and natural gas from the US Gulf Coast transit the waterway too.
It's also one of the fastest and least expensive ways to move grain and other agricultural commodities, which leave the port of New Orleans for China.
About 72% of all the traffic passing through the canal is either headed for or leaving the United States.
But shipping executives say increasing transit times and costs are leading some bulk carriers to seek out alternate routes.
Vessels carrying products to customers in Asia, may sail through the Suez Canal or around the Cape of Good Hope, adding one to two weeks to the journey.
- It's basically your products that's in break bulk or in tanker.
So this could be oil, it could be natural gas, it could be grain products.
- [Narrator] For now, Maersk and other large container ship companies have no plans to divert their core shipments away from Panama.
Still, executives say, it's not off the table if drought conditions worsen.
- Yes, we have a problem.
We acknowledge this will impair your operation, but in order to minimize the adverse effect of it, we are providing the information, so you make the best decision based on real data on real-time.
- [Narrator] The canal's future now hinges on $ billion plan to divert as many as four additional rivers into the waterway.
That's an addition to the three rivers that already feed it.
But adding new reservoirs is a costly and lengthy undertaking.
New water would have to come from watersheds that are farther from the canal, requiring the construction of tunnels as well as dams.
River diversions also put pressure on the region's limited water sources, which support over 2 million people and the surrounding rainforest ecosystems.
Ultimately, canal operators are working to maintain a balance between the water needs of the canal, the environment and Panama's growing urban population.
- We have to make provisions to supply fresh water for water consumption well in advance economic growth and population growth.
There is a slight competition between water for transit and water for human consumption.
- [Narrator] The Panama Canal Authority is also investing in new infrastructure outside of the waterway.
- We are thinking about roads, we are thinking about storage facilities, we're thinking about complimentary services to be provided for cargoes that can wait in Panama
to find the final destination.
- [Narrator] These changes were meant to be carried out over 25 years, but administrators say, drought and changing weather patterns has cut that timeline down to 10.
Canal operators see this crisis as an opportunity to fast track critical infrastructure buildouts.
- The opportunity is now because there is a high level of awareness of the situation.
People have a sense of what the value of not having fresh water means.
(gentle music)
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