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Panama Canal restrictions are expected to shake up global supply chains

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Pain at the Panama Canal

In the news

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Dire drought. Fewer ships are passing through the Panama Canal as drought has brought local water levels to record lows amid the El Niño weather phenomenon and climate change. Roughly 40% of US container traffic, as well as about 5% of global maritime trade, typically passes through the canal. With the dry season expected to run through April and climate extremes intensifying, the conditions are only expected to get worse. [Foreign Policy]

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Daily limit. Authorities overseeing the Panama Canal recently cut daily traffic through the narrow corridor to 24 ships a day, down by roughly a third from last year’s levels. The limits on canal passings are expected to result in significant economic losses, according to a canal official. Lower levels of water could cost approximately $500 million to $700 million in 2024, the official said. [AP]

There could be nearly 4,000 fewer Panama Canal crossings as a result of the restrictions.

On McKinsey.com

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More time at sea. The slowdown at the Panama Canal will likely shake up regular shipping routes. A ship traveling from Asia to the Caribbean that would typically cross east through the Panama Canal (taking about 26 days) could instead go west around the Cape of Good Hope (taking about 39 days), McKinsey senior partner John Murnane and coauthors explain. A ship going from the west coast of South America to the Caribbean that would typically use the Panama Canal (taking about six days) could instead cross through the Strait of Magellan, completing what is essentially a full loop around South America (taking about 31 days).

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Rising costs. No matter where ships might divert to, costs are likely to increase and be passed on to consumers. McKinsey analysis finds that new shipping routes could increase the total ocean transport costs of trade currently moving through the Panama Canal by about 5%, or an estimated annual $1.1 billion. Some ships will choose to pay extra for priority transit slots through the canal, while other vessels carrying less valuable cargo could find it cost prohibitive to use the canal. Learn how restrictions at the Panama Canal are likely to affect supply chains.

Explore Panama Canal work-arounds

— Edited by Jana Zabkova, senior editor, New York

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Panama Canal restrictions are expected to shake up global supply chains

Pain at the Panama Canal

In the news

There could be nearly 4,000 fewer Panama Canal crossings as a result of the restrictions.

On McKinsey.com