Trade cramp seen as likely in 2024 as Panama struggles with drought
Winston Simpson, chief executive of the Rural Agricultural Development Authority, RADA, says falling water levels in Panama, which affect the ability of larger vessels to pass through the canal, will likely impact Jamaica in the fourth quarter, for which data is pending.
He expects the pricing of goods and availability of inputs to be affected.
“We do not produce feed and fertiliser. Some of the costs faced locally are not due to drought and hurricanes,” the RADA CEO told the Financial Gleaner.
Around 80 per cent of global trade is done by sea. And problems emerging in the Suez Canal and the Panama Canal are expected in 2024 to result in shippers choosing longer routes.
The impact of conditions in the Panama Canal is expected to be experienced throughout the coming year, with environmental concerns expected to affect performance of the canal, and as the Panama Canal Authority implements water conservation measures in response to the drought.
Around 40 per cent of all container traffic from the United States transits through the canal annually, amounting to approximately US$270 billion in cargo. It is expected that logistics providers will make use of alternative shipping routes to alleviate potential disruptions.
Logistics tracker Container xChange indicates that in Panama, the maximum draught has been decreased from 50 feet to 44 feet, with each foot reduction in draught resulting in a “loss” of 400 TEU capacity. A TEU refers to a 20-foot cargo container.
The average container vessel may transport 2,400 TEU less cargo, according to Christian Roeloffs, co-founder and CEO of Container xChange.
Other research sources say disruptions in maritime transport is expected to impact economies.
However, President and CEO of the Port Authority of Jamaica, Professor Gordon Shirley, is still upbeat, saying that there is no current impact.
“We have not received any reports of significant impact on the operations at our ports resulting from the changes in the Panama Canal’s operation. Nonetheless, the Port Authority continues to monitor the impact of global trends on the cargo flows into Jamaica via the public shipping wharves,” Gordon told the Financial Gleaner.
He added that the most recent reports suggest “a gradual return to normalcy as the Panama Canal Authority signalled that it would begin to increase the number of daily transits, given the improving water levels in reservoirs serving the canal.”
However, analysts watching the drought in Panama, which has been described as historic, are not so optimistic.
Additionally, the channel between the Pacific and Atlantic oceans is operating at only 55 per cent of normal capacity, as indicated by Capital Economics. Transits have been restricted for the coming months, and prices have gone up accordingly.
The Panama Canal, in normal times, carries five per cent of seaborne trade. Analysts foresee impacts on global inflation if both blockages in the Suez and Panama persist.
Container xChange notes that currently, the dry bulk and LNG segments have endured most of the restricted transits via Panama.
The immediate impact includes a halved number of vessels passing through the canal, from shipping companies rerouting vessels, blank sailings, and longer transit times; and expectations of potentially higher shipping costs in coming periods.
The World Trade Organization, WTO, itself has downgrading its forecast for world merchandise trade volume growth in 2024 to 0.8 per cent, less than half of the previous 1.7 per cent growth forecast.
Aside from shipping challenges, the WTO projects that trade slowdown in the first half of the year to involve a large number of economies and a wide array of goods, specifically certain categories of manufactured goods such as iron and steel, office and telecoms equipment, textiles and clothing, although sales of passenger vehicles.
The organisation says that demand appears to be weakening in manufacturing economies, with import volumes in 2023 already expected to contract by between 0.4 per cent and 1.2 per cent in North America, South America, Europe and Asia.
So far for Jamaica, the most recent trade data collated by the Statistical Institute of Jamaica, from January to August 2023, has indicated a drag on imports, which fell from US$5.15 billion to US$5.08 billion, or 1.4 per cent year-on-year. However, the drag was mainly due to crude, other fuels and lubricants at a time when world oil prices have been vacillating but are lower than expected. Jamaica’s exports rose 29 per cent in the same period, from US$1.09 billion to US$1.41 billion.