Supply Chains – Even The Holiday Shopping of Consumers – Is Threatened by a Drought in the Panama Canal

Panama is currently in the middle of its rainy season, which is one of the driest on record for one of the world’s wettest nations. The lack of plentiful rainfall is causing reduced water levels and placing pressure on a crucial international shipping route at the Panama Canal, where freshwater is vital for its lock-driven operations: The weights of vessels and daily traffic are subject to regulations set by the canal administration.

The Panama Canal Authority just this week added an additional 10 months to such restrictions.

While the immediate effect on US manufacturers, merchants, and consumers currently seems to be small, the possibility of a more significant disruption is developing.

It’s yet another instance of a weather-affected waterway holding down the flow of essential cargo, similar to lower river levels in the Rhine and the Mississippi or the strong winds and sandstorm that are thought to have contributed to the gigantic Ever Given vessel’s two-year-old run-in with the Suez Canal.

Any increase in maritime choke points, whether brought on by the climate, weather, geopolitics, or some other unanticipated event, might cause problems for the global supply chain networks, which have become considerably more stable since their pandemic-era upheavals.

Janelle Griffith, North American logistics leader for insurance brokerage and risk consultancy firm Marsh, stated that around 80% of the goods we trade are transported by vessel over water. So when we notice those kinds of bottlenecks, we should be concerned. And, certainly, there are international repercussions. When one link in the supply chain is blocked, the entire supply chain is immediately impacted.

Inadequate Water

The nearby freshwater lakes provide water for the Panama Canal. Then, a lock system floats each vessel through the canal using enormous volumes of water—at least 50 million gallons of it.

Typically, lake levels are rising at this time of year. However, according to Jon Davis, chief meteorologist at Everstream Analytics, the amount of rain in Panama during spring and summer was the least since the turn of the century.

“It doesn’t mean that freshwater lake levels are going to decline, but as we look into next month, we don’t see any significant improvement here,” he said. “And that is a concern longer term with El Nio beginning to intensify and every climate model out there indicating that El Nio will continue to intensify through the rest of this year and into early 2024.”

According to him, this could result in even drier circumstances in Panama and the rest of Central America’s southern region.

The Shifts – Supply-Chain Changes, And The Solutions Already Prepared By The Owners

It might have been a different story if this had happened prior to the pandemic lockdowns and the sharp changes in consumer buying habits that disrupted supply chains.

Companies have diversified their supply chains as a result of what transpired in 2021, Kwan claimed.

Warehouses filled to the brim with goods as a result of the shift in ordering habits from “just in time” to “just in case,” and those inventory levels stay high enough despite consumers spending more on intangibles like Taylor Swift tickets rather than tangible goods.

All individuals involved in the supply chain would face more obstacles with any delay, but many businesses have taken precautions like reshoring and nearshoring to reduce risks, according to Kamala Raman, vice president and team manager at Gartner’s logistics, and customer fulfillment.