Panama Canal Delays: Global Supply Chain Impact

GSC Logistics ∕ August

We sat down with David Arsenault, President, GSC for an in-depth discussion regarding the Panama Canal backlog and how this will impact the global supply chain, import / export strategies and more. Arsenault, a global supply industry veteran, served many years on and off cargo ships, eventually becoming a Country Manager in Thailand and General Manager in Taiwan for Sea-Land (acquired by Maersk), before becoming western President and CEO of Hyundai Merchant Marine America, and now he serves as the President of GSC.   

Arsenault has been through the Panama Canal on a vessel four times as an officer merchant marine. He’s also toured the canal as an officer of Hyundai, alongside the Panama Canal Authority, when the new locks were first being commissioned in 2016. 

Here’s what we learned in speaking with Arsenault on the matter.

What’s happening at the Panama Canal?

Currently, the Panama Canal is facing a backlog of ships – at one point reaching 150+ – as the Panama Canal Authority has changed booking requirements due to a drier than anticipated rainy season. Each lock requires 50 million gallons of water to be able to move just one ship through the canal. There are twelve locks. While the newer locks allow for some filtration and re-use of water, the older locks, which are still in commission, do not. Thus, the seasonality of the rainy season has a large impact on canal usage.  

The Panama Canal Authority has both changed the number of ships allowed to traverse the canal each day, but also has reduced the tonnage the ships passing through the canal are allowed to carry. Considering the Panama Canal handles 40 percent of U.S. imports, this has a massive impact on the global supply chain.  

Impacts on the Global Supply Chain

We’re already receiving calls from clients wanting to re-route cargo from Panama to the West Coast and planning land-bridge moves across the U.S. via rail. The West Coast ports are undersubscribed currently and have the capacity to take vessels that may be diverted from Panama to the West Coast. 

We’ll also see more cargo routed from Asia to the U.S. East Coast by way of the Suez Canal. The fact remains that the Port of New Jersey and New York is the second busiest port in the U.S. by container volume. Rerouting vessels via the Suez Canal will be a popular option; however, that canal can only handle so much volume as well.  

Predictions for Import / Export Strategy Shifts

The backlog at the Panama Canal serves as a great reminder to keep diversification of import / export origins and destinations whenever possible. When looking at importing into the U.S. specifically, it’s important to consider what we call a “four corner” strategy where cargo is imported into a port associated with different regions of the U.S. 

Additionally, with the ILA contract up for renewal and the ILWA approaching ratification, we’re likely to see an influx in volumes of cargo shift back to the West Coast from the East and Gulf Coast. The ILA covers the labor for the East Coast and Gulf Coast and is something to keep in mind with future import strategies. 

One thing about the supply chain is certain: plan for the unexpected. Because you never know what disruption will occur next; it’s not a matter of if, but when. 

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