THE Bank of Jamaica (BOJ) has signalled that the worsening shipping delays through the Panama Canal are threatening to pull it into a new fight against inflation, just as it is managing to show some success in its two-year battle against price increases. The delays have affected up to 20 per cent of trade flows to Jamaica, according to the International Monetary Fund (IMF), and could spark another round of inflationary pressures as shippers pay more to move goods, and pass on the added costs to consumers.

The issue was discussed during the September meeting of the central bank’s monetary policy committee (MPC) and was itemised in the minutes as one of the developing “risks” it must pay attention to as a drought, exacerbated by a severe El Nino weather system in Panama, continues to plague water levels at the Gatún Lake, which feeds the locks of the key global trade conduit.

“Dry weather conditions in Central America contributed to a decline in the water level in the Panama Canal and an increase in the waiting times for vessels,” the minutes said. This was the first time MPC minutes show the matter was discussed at its meeting since the Panama Canal Authority (ACP), in July, started restricting the number of ships that can travel through the vital maritime trade route. Around 1,000 ships pass through the Panama Canal each month, carrying a total of over 40 million tonnes of goods — about 5 per cent of global maritime trade volumes.

But according to Panama Canal authorities, the drought requires them to reduce the number of daily transits from 29 to 25 ships per day, starting this month, and in the proceeding weeks, they will reduce vessel transits even more until it declines to 18 ships a day in February. That represents between 40 per cent to 50 per cent of full capacity. Before the restrictions, up to 38 vessels traversed the canal daily.

The International Monetary Fund (IMF), in a blog post last week, said data it examined on the UN global platform, Portwatch, show ports in Jamaica, Panama, Nicaragua, Ecuador, Peru, and El Salvador “are suffering most from these delays, with 10 per cent to 25 per cent of their total maritime trade flows affected”.

Kingston Freeport Terminal Limited (KFTL), a container port, told the Jamaica Observer in e-mailed responses that shipping lines using its facility have been experiencing delays when using the Panama Canal, forcing some to find alternative routes to move goods from the Pacific Ocean to the Atlantic.

“Shipping lines are readjusting their schedules and port rotations,” KFTL’s response said. But as water levels in the canal decline, the canal authority is also limiting how far a ship’s hull can go below the water, known as its draft, which significantly reduces how much goods a ship can carry. At present conditions, vessels are traversing the canal 40 per cent lighter.

“To comply with the new draft restrictions imposed by the Panama Canal [Authority], shipping lines are adding stops in west coast South American ports and dropping off cargo,” KFTL added. Some containerships are unloading their containers and moving them either by rail or road across Panama to be loaded on vessels on the other side.

KFTL, however, said the delays have not impacted its operations, though shipping lines are likely to face higher costs as some pay a big fee to jump the line, wait more than two days in some cases before getting a slot to move across the 40-mile wide isthmus, or avoid the canal entirely by taking a longer route.

“If the restrictions intensify, we expect to see US east coast cargo…being transported by rail from the west coast ports. The same could happen in other countries that have access to both the Pacific and Atlantic oceans. We could also see some shipping lines using the Suez Canal route on the back leg to Asia,” the KFTL response pointed out. Using the Suez Canal across Egypt to access East Asia could add up to six days to the journey. Already Panama is planning a project to increase water to the canal, but that is only in the early planning stages.

“We continue to invest and prepare for growth in the region,” KFTL continued. It said traffic from within the Americas continues to grow as the need for nearshoring continues.

Kingston Wharves was asked for responses as well but did not reply in time for the publication of this article.

For shipping lines, the cost is stacking up already. One shipping executive told The New York Times that his company decided in August to pay US$400,000 in a special auction to move a ship ahead in the queue, roughly doubling the total cost of using the canal. Other companies have paid over US$2 million, a cost they will sometimes bear to ensure ships don’t miss their next assignment. A portion of these extra costs will be passed on to consumers, who are already being pummelled by inflation.

“If this was a year ago, when we still had record-high freight rates and consumers still spending a lot on containerised goods from the Far East, then you would see more drama than you have now,” said Peter Sand, chief analyst at Xeneta, a shipping market analytics company.

Disruptions in maritime shipping have been consistent over the past few years, whether it’s port congestion or the infamous blockage of the Suez Canal in 2021. In response, shippers have learnt to divert cargo — this time, their options include longer intermodal routes and alternative shipping lanes. As a nation, the US will be hit hardest. Forty per cent of all US container traffic travel through the Panama Canal every year, which in all moves roughly US$270 billion in cargo annually. Panama is not likely to be hit as hard by the backlog as the canal only generates six per cent of the country’s gross domestic product (GDP).