PANAMA CANAL DROUGHT 2/3

WHEN A MAJOR SHIP TRAFFIC JAM HITS THE ROAD

It’s not hard to imagine a shortage of anything anymore. We’ve all been there. And if the pandemic taught us anything, it’s the vulnerability of our supply chain. Most of us are neither willing nor able to be self-sustainable, or do without.

I’ll say it again - we have dug ourselves a deep, and now problematic, hole of dependence on global trade. Off-shore sourcing used to make sense. And just as we were coming out of logistical grid lock, finding solutions in fast-tracked automation, drought tipped the vital Panama Canal into crisis mode. No relief is in sight.

Faster shipping, lower prices, and somewhere in its 109-year history, the realization of a major reduction in environmental impacts, with 8,000 miles shaved off a global trade route.

So, what are we looking at as the canal reduces capacity to preserve water supplies?

What if it closes?

Don’t expect to see massive container ships plying the treacherous Cape Horn route, adding risk, and weeks, to their journeys. Plan B is playing out primarily in the U.S., where over-the-road shipping is poised to pick up some of the slack.

About 73% of goods eastbound through the canal are headed to U.S. ports, to be distributed mainly along the densely populated eastern seaboard. Ships are now starting to divert to west coast ports, to offload onto trains and trucks (mostly) for a 3,000 mile, cross-country trek.

The spotlight will be on economic impacts, but the thought of the increase in emissions is horrifying.

Let’s do a little math. We’re talking about 9,800 ships annually. Each carries up to 24,000 20-foot containers. That’s 235 million in total, or well over 100 million tandem tractor trailer loads.

Of course, western ports could not handle that entire volume, but impacts could still be catastrophic – not just emissions, but to the aging road infrastructure, traffic volumes and quality of life.

Also consider that there are fewer than three million tractor trailers on the road, which also begs the question of the viability of Plan B.

What will Plan C, D, etc., look like?

Here’s a for instance. In Mexico, the government is working on a $2.8 billion plan to reactivate a century-old rail line at the shortest point between its coasts. It’s capacity is estimated at only 10% of goods that make the canal trek, but that can mean a full schedule of, at best, a mix of diesel and electric locomotives.

The country is calling it a long-term climate change strategy. Good intentions and self-regulation aside, like many countries, Mexico has a comprehensive framework of environmental regulations, but struggles to enforce them. Sustainable Governance Indicators scores it 4.4/10 on its overall environmental stance. The U.S. scores a 5.3.

There are lots of scenarios to unpack, and not all are potentially negative.

What if this leads us, as the pandemic did, to thinking differently, and more urgently?

Stoppages in production of products requiring semiconductors, among them cars, electronics, renewable energy, health care equipment - prompted a rethink about the benefits of importing those and other components.

Are smaller circles now the answer?