Drought and conflict: Chokepoints disrupting global trade
Global trade faces a double risk: drought in Panama and conflict near the Suez Canal are causing shipping delays, price hikes, and supply chain disruptions.
The Suez and Panama canals play a vital role in global trade, together responsible for approximately 20% of the world’s trade (15 and 6 percent respectively). Due to extended drought in Panama and conflict in the Suez Canal region, global shipping is being delayed or re-routed with significant market externalities and consumer price increases.
The critical role of canals in global trade
Panama, a crucial waterway in the Western Hemisphere, typically carries 5% of the world’s maritime trade and 40% of U.S. container traffic, facilitating the movement of roughly $275 billion worth of goods per year. As the Panama Canal sits above sea-level in some parts, fresh water has to be pumped from the nearby reservoir of Gatun Lake to allow sufficient water for supertankers to be able to flow. With freshwater levels historically low, due to a prolonged drought and inefficient water management, Panamanian authorities can only allow 24 ships to cross per day, down from 38 a few years ago. This reduction means more delays and higher shipping costs for all. Panama Canal Administrator Ricaurte Vásquez now estimates that the…
