Caribbean private sector warns Panama Canal cutbacks could raise prices and cause shortages

NEW YORK, United States. The Caribbean Private Sector Organisation (CPSO) has warned regional importers that a significant reduction in traffic through the Panama Canal could lead to price rises and even shortages of goods.

The warning follows announcements by the canal authority that it is preparing for a second round of reduced shipping because of El Niño, which has brought drought-like conditions to the Caribbean and Central America.

Traffic through the canal was cut to 32 ships a day in early September because of water shortages linked to much lower rainfall. A further reduction from next month will allow only 29 transits a day through the waterway linking the Pacific and Atlantic oceans via the Caribbean Sea.

A third of non-fuel imports

CPSO chief Patrick Antoine said up to US$10 billion in regional imports pass through the canal, about a third of imports not related to fuel.

"The cost signals are already visible," he said in a statement. "A priority auction slot recently fetched US$5.3 million, reported as the highest bid ever recorded. Auction premiums and low-water surcharges do not stay on the carriers' books."

"They are passed down the chain to importers, to distributors, and ultimately to the Caribbean consumer," he said. "When slot scarcity forces carriers to reroute or rationalise port calls, small Caribbean markets are typically the first to lose frequency and the last to regain it."

He noted that CARICOM is among the regions of the world most dependent on traffic through the waterway.

Call for regional supply

"The risk to consumers is twofold: availability, through longer lead times and thinner inventories; and price, as surcharges and longer voyages feed into landed costs," Antoine said.

"Every percentage point of import demand we can shift to regional supply is a percentage point insulated from canal auctions, low-water surcharges and chokepoint conflict. Regional resilience is not built during a crisis. It is built before one."

The canal problems come as consumers and importers are also feeling the effects of the conflict in the Middle East and the Strait of Hormuz.