How will the continued congestion of the Panama Canal affect the US economy?

Recently, news from the global shipping network showed that with the increasing congestion of the Panama Canal, transit auction prices have skyrocketed, and VLGC rents have also risen sharply. According to an evaluation report from the Baltic Shipping Exchange, the freight rate of a VLGC from the Middle East to Japan has increased by about 29% within a week, reaching $59700 per day; The rent from Houston to Japan increased by about 13%, reaching $66300.

The world-renowned Panama Canal is a golden waterway connecting the Pacific and Atlantic oceans, with a total length of 81.3 kilometers. From an economic perspective, this canal is on par with the Suez Canal and has played a crucial role in the development of world trade and economy. It is known as one of the Seven Wonders of the World's Engineering and is known as the "World Bridge". The Panama Canal connects approximately 170 countries and regions, reaching approximately 1920 ports worldwide. Approximately 6% of global maritime trade relies on this route, making it also known as the "artery" of global shipping.

The fundamental reason for the congestion of the Panama Canal is the special climate phenomenon of El Ni ñ o. El Ni ñ o means "little boy" in Spanish. This phenomenon marks an abnormal warming of the surface waters in the central and eastern tropical Pacific. This is a natural climate pattern that occurs on average every 2 to 7 years.

Since last year, the Panama Canal has suffered unprecedented drought and drought since records began in 1950, which has not only led to a significant decrease in canal capacity but also affected container ships passing through the canal. Due to the prolonged drought caused by the El Ni ñ o phenomenon, the Panama Canal Authority has been restricting the maximum draft and maximum number of ships passing through since the beginning of last year to alleviate water supply pressure.

The increase in shipping costs caused by congestion in the Panama Canal will inevitably lead to a continuous rise in global prices of commodities such as energy, agricultural products, and basic raw materials, further exacerbating the food crisis, energy crisis, and global inflation, which has attracted widespread international attention.

As is well known, the United States is the largest user of the Panama Canal, accounting for approximately 73.7% of the total volume of goods exported and imported in containers. Every year, at least 40% of container transportation in the United States passes through the canal, with goods worth over $270 billion. The significant increase in freight rates on the Banaba Canal undoubtedly has the greatest impact on the US economy.

According to analysis by Norwegian investment bank Fearnley Securities, due to the decrease in the benchmark price of Montebellevue natural gas in the United States and the expansion of the arbitrage window, VLGC's rent has continued to rise. At the same time, the widening natural gas price difference between the United States and Asia is also one of the reasons for the strong rise in rent.

At the same time, the continued congestion of the Panama Canal is undoubtedly a blow to American agricultural products, which have entered the peak harvest and export season.

According to Fearnley Securities, the latest transit bidding price for the Panama Canal has reached $1.7 million. It is reported that the transit bidding price for the Panama Canal once reached as high as $4 million, and according to data from ship brokerage company Gibson, the average winning bid price for ships using old locks in 2023 was about $100000. Therefore, the impact on the United States, the largest user of the canal, is the first and foremost.

A globally renowned trader and analyst have stated that bulk grain shippers traveling from export centers along the Gulf Coast of the United States to Asia are using longer shipping routes to avoid the restricted flow of the Panama Canal, which will result in higher shipping costs.

The increase in costs will inevitably weaken the demand of grain merchants for American corn and soybeans. In recent years, US grain exports have faced strong competition from countries such as Brazil, and the pressure on US grain exporters has already been significant. At the same time, the increase in costs has greatly weakened the attractiveness of American agricultural products, and the Asian market is increasingly inclined to choose products from South American agricultural countries such as Brazil.

Overall, the increase in freight rates caused by congestion on the Banaba Canal has had a significant impact on American commerce and economy, particularly on the cost and delivery of agricultural products. The impact has been the greatest in recent years, exacerbating the already weak US economy.