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Climate change has taken the reins

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By Diego Balverde

· 5 min read


The Panama Canal is still stuck

The maritime chaos that the Panama Canal is experiencing today due to the serious drought is leading governments and shipping companies to take desperate measures. We have recounted the phenomenon throughout several articles, in which we mentioned how the congestion of ships in the place has reached such a point that there are already transporters paying millions of dollars to skip the line and cross the canal or how the Government of Panama is studying the possibility of artificially squeezing the clouds to make it rain.

Occasional solutions

Faced with this situation, some logistics companies have just opted for another longer (but safer) alternative means of transportation: the train. However, the route is not in a position to speed up the problem, far from it. The low capacity of their formations generates underlying costs, such as which ships collect the goods and the 4 extra ship/train - train/ship pallets. Moreover, at the other end, there are no receiving ships, and the unloading ships must initially return with negative bands (losses on their return due to traveling empty).

This is a global problem

The water shortage in the Panama Canal is key to the global economy. Six percent of daily world trade and 40% of US containers pass through it. However, this enclave that connects the Atlantic and Pacific oceans requires a large amount of water to function: about 193 million liters for each transit. In the last five years, the region has recorded an abrupt 20% drop in rainfall, so the lakes that provide water to the canal have fallen to very low levels (1.8 meters below normal). The Gatún, the main one of them, reached historic lows in July.

Restrictions and waiting

This reason has led the Canal Authority (ACP) to announce that the lack of rain is endangering the lock system that helps move ships from one ocean to another and to apply restrictions. One of its measures was to reduce the number of boats that can cross it, limit the draft and weight of the boats. Consequently, this has led to a queue of dozens of vessels (which translates into weeks of waiting and million-dollar losses for companies). While some take longer and more expensive sea routes around South Africa, there are others thinking about rail.

Maersk your own solution

The most viable alternative. One of the latter is the shipping giant Maersk, which in the face of these conditions has announced that it will begin using trains to avoid the drought-affected Panama Canal. It must be taken into account that the Panama Canal Railway has 76 kilometers that run adjacent to the canal and also connects the Atlantic and Pacific oceans through a land bridge. Maersk and other shipowners were already using it to temporarily unload the weight of large containers before passing through the waterway to meet new draft restrictions.

Thus, instead of passing through the Panama Canal, the ships would stop at the ports of Balboa, on the Pacific side, leaving cargo destined for Latin America and North America and picking up cargo destined for Australia and New Zealand. The Port of Manzanillo, on the Atlantic side, will be used to drop off cargo bound for Australia and New Zealand and pick up cargo bound for Latin America and North America. Once at the port, the containers are loaded or unloaded and then moved via railway to be picked up by another ship.

With the largest fleets on the planet, they can reduce costs, both by having storage in their multiple terminals nearby and also by being their own shipowners to put together the routes. You can achieve all this due to the enormous number of ships operating in your shipping company's area, something that makes it impossible for the rest of the shipping companies to think about.

There are no more options

It must be taken into account that right now the Panama Canal was the fastest route among all the options. Traveling by it from Shenzhen, China, to Miami, Florida, with a high load only takes 35 days. Another alternative, the Suez Canal, takes 41 days. However, in recent days, there have been attacks by Houthi rebels in the Red Sea against Western vessels, so this is no longer a viable option, at least in the short term.

Options without support

Mexico wants part of the cake. Since land transportation can be an alternative for the purposes of the current climate crisis, with continuous droughts, at the narrowest point in Mexico, between the Pacific and Atlantic oceans, the government is reviving a railway between the Gulf of Mexico and the Pacific Ocean that had been in decline for more than a century. Mexico's goal is to capitalize on the desperation of multinationals to be closer to the United States. That is, rivaling the Panama Canal and thus obtaining a great economic reward.

Work began in 2020: "We will go... from one ocean to another in seven hours," President Andrés Manuel López Obrador boasted of the project. If all goes well, this 300-kilometer rail line from the Pacific port of Salina Cruz to Coatzacoalcos, on the other side of the Tehuantepec isthmus, could be operational by 2033 and would boost the country's GDP by three to five percentage points.

The Panama Canal Railway has 76 adjacent kilometers that also connect the Atlantic and the Pacific.

Conclusion

In this way, the world has the options of finding new markets that deliver what the United States exports annually from other places, Brazil, and Argentina. The latter with a unique opportunity in its economic resurrection that allows larger spreads for buyers due to the country's devaluation. Having the possibility of immediately satisfying the needs of the world community in terms of supplies of commodities and specialties.

But it all comes down to reducing the environmental impact, which is not always reflected in the polluting site; As is the case of Panama, it is a consequence of global warming that caused the unconscious behaviors of industries and countries without thinking about the consequences that today stop their same products as a result of Climate Change. Reducing global emissions is the objective to get out of a vicious triangle of: consumption + transport congestion + commercial shortages. These 3 components are going to push global inflation to its partial solution. Take care of the planet!

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Dr. Diego Balverde is an Economist at the European Central Bank and has extensive experience in climate finance. He is currently also an Advisory Member of the Council of Foreign Trade at The World Bank. Diego is very active on the international sustainability stage having attended COP27 as a Circular economy for Climate Change specialist and will also be attending the G20 Conference in India as part of the Energy, Sustainability and Climate Task Force. Diego holds a PhD in Foreign trade from Chapman University and an MBA degree from Cambridge Judge Business School.

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