Plummeting Water Levels in Panama Canal May Trigger Global Supply Chain Issues

Posted: September 16, 2023 7:18 am

Could your holiday shopping goals be derailed by the weather thousands of miles away? Climatologists are warning that a severe drought across the region of the Panama Canal could pose serious issues for the holiday shopping season. Closer to home, shipping along the mighty Mississippi River could also be impacted. Here is what you need to know.

Panama Canal Experiences Declining Water Levels as Drought Worsens

This is typically the time of the year when Panama records its highest rainfall totals. However, despite being known as one of the wettest countries on the planet, Panama is struggling to record measurable rainfall. This is a significant problem for the Panama Canal, a waterway that relies on freshwater for its function.

As a result of the lack of water falling onto the canal, local officials have been forced to impose restrictions on the weight of vessels and the amount of daily traffic. Although the U.S. has not felt the impacts of these restrictions, economic experts say that there is the potential for widespread disruptions heading into the holiday season if the situation does not improve.

This is not the first time that weather has impacted the flow of freight through a major waterway. Low water levels in the Mississippi River stranded barges just one year ago. Shallow waters in the Suez Canal and the Rhine River also severely disrupted the shipping industry in other corners of the world.

These disruptions are a hindrance to the natural flow of the global supply chain. Any blockage in these waterways can have a domino effect on this chain.

Understanding How the Panama Canal Operates

To understand why the drought is impacting the shipping industry, you need to know how the Panama Canal operates. This canal between Central America and South America uses water from the regional freshwater lakes. An intricate lock system leans on the water to move vessels through the canal.

This is the time of the year when the water levels in the lakes are usually rapidly rising. But the lack of rainfall this spring and summer has created insufficient amounts of water in the neighboring lakes. What is most alarming is that the onset of El Niño may translate to the intensification of the drought. The current long-term forecast is calling for a drier weather pattern in this part of Central America.

Mississippi River Drought Woes Also a Concern

Although it seemed like a wet summer for much of the U.S., the Mississippi River Valley has been dealing with rainfall trending well below average over the past few weeks. This is particularly true for the lower portion of the river. The record-breaking heat to start the month of September in the upper portion of the valley will likely exacerbate the problem.

The declining water levels could result in restrictions just as farmers begin to harvest and transport their crops. Agricultural commodities are likely to be the most impacted by the potential restrictions on the Mississippi River, also creating problems for the supply chain on a national scale.

Low Water Levels Create Delays

The problem at the Panama Canal is influencing wait times. The number of ships waiting for passage at both ends of the waterway continues to increase. Bulk carriers have been the most impacted by these long wait times with ships experiencing wait times of five days or longer. This bottleneck will inevitably lead to shipment delays throughout the U.S. if it is not resolved quickly. The arrival of the holiday spending period will suffer the most as a result of these delays.

At this point, the U.S. ports have not experienced significant impacts from these delays in Panama. The National Retail Federation also has not reported any delays with their supply chain partners. However, the agency is proactively working with their partners to try to minimize any potential issues in the weeks and months to come.

The good news is that the pandemic-era supply chain issues prompted many retailers to diversify and explore other shipping methods. Additionally, consumers are moving more toward the purchase of intangibles such as sporting event tickets rather than hard goods.

Some savvy companies have also been proactive about mitigating the risks of climate-induced disruption such as this. While there is always some level of risk, having a backup plan in place can help to mitigate these issues.

Only time will tell if the drought in Central America and the Mississippi Valley will create havoc on the upcoming holiday shopping season.

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