It is something that should concern all of us on this planet, since it has the percentage powers to stop, delay and thus generate delays that are paid for with extra costs, which are directly applied to the products we consume on a daily basis.
The longer than usual prolongation of the dry season means that “this is a natural phenomenon with a serious global impact.”
The administrative decision to reduce by 20% the daily traffic and the weight of the loads of the ships in transit, due to the lack of water caused by the accumulated drought.
It only increased the immediate technical/operational consequences and will be reflected in the slowdown in maritime traffic accessing the canal.
Nearby ports will be congested, unable to unload containers, and delay costs will become frequent.
“This always translates into costs for end consumers.”
“THE ECONOMIC HIT”
Undoubtedly this generates a financial consequence, only Panama will see its annual income reduced by 8 to 15% for the 21 days of application of the traffic reduction measure, (an estimate of 300 to 700 million dollars).
But the important thing is that the delays will transfer the cost of delay to prices and thus the percentage increase in inflation in the world can be achieved.
Delays due to drought produce cost overpricing and thus translates into inflation that is directly assigned to the products transported by cargo ships.
If we add to this that many ships must forcibly reduce their loads in other unscheduled ports on their trade routes (as is happening).
It generates widespread losses, which we all pay for in some way in the finished product.
“This is causing millions in daily losses to shipping companies and their customers who require the products to keep the trade chain running.”
The Financial Aggravation:
“With interest rates high and inflation subdued in the United States, early PPI indicators will be where the consequences are seen in the next 20 days.”
EUROPE IS THE MOST AFFECTED
It is well known that Europe, at the end of the summer, must stock up for autumn and winter.
In the medium term, the delays will be called “shortage” for the market and if the low water levels in the basins persist.
“Environmental damage will be transferred to prices immediately and in scarcity over time.”
In this way, the European continent can receive this news as a strong consequence for its block economy.
This has a direct impact on the reduction of consumption in the trade of the European Union, due to possible shortages.
Causing a contraction in the financial sector due to a decrease in the daily commercial flow due to a lack of raw materials.
What can cause the inflationary effect in the EU to continue increasing, if the shortage due to the drought continues, the European economy will be tremendously affected.
“The restrictions are already driving up shipping prices between China and the United States by up to 40% amid rising sea temperatures.”
PROBLEMS WHAT ACCUMULATE
This situation affects more than 170 countries and all kinds of products, including soybeans and liquefied natural gas from the United States (committed for the European winter).
Food has also been affected, with bulk carriers carrying staples from corn to iron ore, as well as tankers carrying oil, fuel, gas and chemicals for agricultural production.
“These consequences could be greater if the drought and the traffic delays extend, a result that the rest of the planet will pay for in rising prices and shortages.”
The area around the canal is experiencing one of the two driest years in the country’s 143-year record.
The “El Niño” weather phenomenon, associated with warming water surface temperatures in the eastern and central Pacific Ocean, is contributing to the drought in Panama.
Major drought patterns have increased with “El Niño” significantly during the last 25 of the canal’s 109-year history.
The seriousness of the situation puts the World Economy in check, at a time when it is balancing the losses from the War between Russia and Ukraine.
This adds even more uncertainty to an economy that is faltering in international terms and that the manifestations of natural disasters are communicating the seriousness of the situation.
If the drought in the Panama Canal extends, the entire supply chain will be affected, collapsing the infrastructure of other crucial sites such as Suez or Turkey.
Anyone shipping products around the world should pay attention to potential disruptions due to climate change, the Panama Canal is just one example of a serious problem affecting all of humanity that will need to be addressed at COP28 in Dubai.
Since the IMO (International Maritime Organization) did not find any solution to the heating of the waters and the load of emissions from ships to the products transported.
Main problem to be solved by humanity, reduce Scope 3 emissions.
If this continues, “it will become increasingly difficult for (the Panama Canal) to ensure that larger ships can pass through.”
The associated economic losses will have consequences for the rest of the financial system, including commodity trading markets and international stock markets.
EUROPEAN CENTRAL BANK