Panama Canal delays may mean lean Christmas for retailers

As wholesale inventories dwindle in the U.S., the ongoing restrictions at the Panama Canal could have implications for Christmas stocks and supply chains. With the imminent Christmas shopping season, the delay in inventory restocking due to shipping disruptions and congestion at the Panama Canal could result in missed sales opportunities for businesses.  

The present disruptions have raised concerns about the ability of businesses to replenish their inventories in a timely manner due to shipping delays. If these disruptions continue, there is a looming threat of shortages for select goods during the critical Christmas shopping period. 

“Ongoing challenges at the Panama Canal are making existing worries for industries even worse. New industry information shows that the U.S. economy’s consumer spending has seen an uptick, which is good.  With inventories falling and demand expected to rebound, the Panama Canal, which carries 40 percent of container traffic from Asia to Europe, is likely to experience increased pressure,” said Christian Roeloffs, cofounder and CEO of Container xChange.

With the Panama Canal Authority implementing water conservation measures in response to a drought, vessels are experiencing prolonged wait times and capacity limitations, resulting in a ripple effect across the shipping sector. 

Prominent industry sources, including Alphaliner, Sea-Intelligence, and Drewry, have reported a notable increase in blanked sailings – the practice of cancelling scheduled sailings to manage capacity. Specifically, during June and July, approximate 10.8 percent of the regular sailings connecting Central China and Europe were cancelled.

Comparable patterns have also emerged in the transpacific trade lanes. As a direct result of these capacity reductions, the market has witnessed a corresponding rise in spot freight rates. This outcome aligns closely with earlier projections made by industry experts. 

Notably, the ongoing efforts by the Panama Canal Authority to conserve freshwater amidst the prevailing drought conditions have contributed to a substantial backlog of vessels – currently numbering around 200 – awaiting their turn to transit through the canal. As this queue lengthens, waiting times have surged to a peak of 21 days, introducing significant delays across multiple segments of the shipping industry. 

Given the Panama Canal’s role as a vital route for North American shippers, who channel 40 percent of all U.S. container traffic through the canal annually, the ramifications of the current disruptions are extensive.

Measures such as the restriction of booking slots and adjustments to vessel weight requirements have compounded the existing backlog, further elongating waiting times. This, in turn, is straining shipping schedules, potentially leading to disruptions along supply chains and the potential for knock-on effects on pricing structures.

The Panama Canal plays a critical role for U.S. shippers en route to Gulf and East Coast ports. The U.S. accounts for 73 percent of Panama Canal traffic representing about US$270 billion in cargo. 

The knock-on effects are also anticipated to affect costs. The need for alternative routes and the resulting longer lead times due to the ongoing congestion have the potential to increase operational expenses for carriers. These cost increases may eventually be passed down to businesses and consumers alike.

While optimism surrounds the prospect of improvements as the rainy season approaches, historical data indicates that even after the removal of draft restrictions, the process of clearing the accumulated backlog may still be a time-consuming endeavour. 

“These supply chain disruptions are expected to reverberate throughout the industry, with potential consequences for container prices. The ongoing congestion and reduced capacity have led to heightened competition for available slots, driving up spot freight rates. The scarcity of available vessel capacity has prompted carriers to reevaluate pricing strategies to offset increased costs and uncertainties,” Roeloffs said.

“Consequently, the traditional equilibrium of container prices may experience adjustments to accommodate the challenges of the Panama Canal congestion.”

Against this backdrop, collaboration among stakeholders becomes even more pivotal. Effective coordination and communication will be instrumental in addressing the multifaceted effects of the Panama Canal congestion on global trade routes and container prices.