The Congestion Of The Panama Canal May Exacerbate Inflation!

According to Taiwanese media reports, the Panama Canal Authority released the latest information on the 23rd that since October 2022, the number of ships passing through the canal has reached 11663, a decrease of 3.6 per cent compared with the same period the previous year. Experts worry that the supply chain bottleneck will increase global inflationary pressure as the year-end consumer season is approaching.

The Panama Canal Authority pointed out that the dry, hot and dry weather reduced rainfall, and in May it limited the draft depth of large ships passing through the canal to 13.56 meters, but the maximum eating level of the canal has dropped to 13.41 meters, significantly lower than the normal period of 15.24 meters, forcing the authorities to further lower the limit of draft depth to 13.4 meters.

Many shipping companies and shippers are forced to reduce the carrying capacity of cargo ships to 40% below normal to avoid stranding, resulting in a repeated decline in the number of ships passing through the canal every day.

According to the data of the Authority, the average number of ships passing through each day has dropped from 38 to 36 in recent months, or even as low as 32. As a result, 12527 ships are expected to pass through the canal in 2023, and the number will decline further in 2024.

Many experts expect the drought facing the Panama Canal to continue into 2024. Because even if the temperature drops, the problem of low water level in the canal cannot be solved without increasing rainfall.

Robert Handfield, a professor of supply chain management at North Carolina State University's Poole School of Business, says more than 110ships are waiting to pass through the canal. As the canal is the most critical link in the global supply chain, the waiting time will be increased by three to six days as more and more ships have to pass.

The trouble, however, is that with the peak season of traditional consumption in Europe and the United States at the end of the year, there will only be more ships waiting to pass through the canal. Although the congestion is still within the scope of overcoming, with the peak of demand in the peak consumer season at the end of the year, the canal congestion problem will only become more serious. This will lead to higher shipping charges, and as a result, manufacturers will have to pass on the new costs to consumers, which will only increase inflationary pressures.

In addition, the International Monetary Fund (IMF) estimates that the doubling of freight rates will increase the global inflation rate by about 0.7 percentage points. Experts worry that the knock-on effect will force central banks to raise interest rates, reduce consumption and reduce demand.