U.S. businesses are facing the grim possibility of missed sales opportunities during the imminent Christmas shopping season, since companies have slashed their pandemic-bloated wholesale inventory levels just as a historic drought is disrupting shipping at the Panama Canal and threatening a delay in restocking, according to a report from Container xChange.
Containerships on both ends of the canal are already seeing a substantial backlog, with around 200 vessels currently awaiting their turn to transit through. As that queue lengthens, waiting times have surged to a peak of 21 days, introducing delivery delays and price increases.
“Ongoing challenges at the Panama Canal are making existing worries for industries even worse,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release. “New industry information shows that the U.S. economy’s consumer spending has seen an uptick, which is good. With inventories falling and demand expected to rebound, the Panama Canal, which carries 40% of container traffic from Asia to Europe, is likely to experience increased pressure.”
That pressure comes just as canal authorities have extended strict “Condition 3” regulations at least until September 2. Their move comes as unprecedented drought in the region has left the 50-mile maritime passage without enough fresh water to operate its locks. In response, the facility has now capped both the number of vessel passages and the drafts—or hull depths—of container-laden ships.
Those water conservation measures mean that vessels are now experiencing prolonged wait times and capacity limitations, resulting in a ripple effect across the shipping sector, Hamburg, Germany-based Container xChange said. As proof points, the firm cited industry sources including Alphaliner, Sea-Intelligence, and Drewry as reporting a notable increase in blanked sailings – the practice of cancelling scheduled sailings to manage capacity—and therefore a rise in spot freight rates.
“These supply chain disruptions are expected to reverberate throughout the industry, with potential consequences for container prices,” Roeloffs said. “The ongoing congestion and reduced capacity have led to heightened competition for available slots, driving up spot freight rates. The scarcity of available vessel capacity has prompted carriers to reevaluate pricing strategies to offset increased costs and uncertainties. Consequently, the traditional equilibrium of container prices may experience adjustments to accommodate the challenges of the Panama Canal congestion.”