Canal premiums

Costs could increase at the Panama Canal following Ever Given.

The recent Ever Given incident and blockage of the Suez Canal which disrupted global supply chains will affect freight insurance and cargo movement throughout the world, said Ricaurte Vázquez, administrator of the Panama Canal Authority.

A former marketing director at the Panama Canal commented, “From a logistical point of view, the temporary blockade of the Suez Canal created delays in deliveries that are difficult or impossible to recover. Everything will be reflected in a temporary rise in prices of some products since demand continued, despite the fact that the supply was on hold.”

Financial experts agree that a prolonged disruption has its implications, as cargo owners incur costs that are passed onto insurers which subsequently result in spikes in premiums. However, an ING spokesperson told Bloomberg that she was optimistic about the moderate economic impact of the blockage and emphasised that inflationary costs would mostly affect consumers.

A maritime logistics expert explained, “The Suez blockage will affect the insurance of ships, the supply chain and the responsibility of the channels, straits and ports in the transit of the ships. All of this can make freight more expensive. The economic impact will be price increases, manufacturing delays and the obligation to maintain higher inventories of parts and therefore a higher financial cost. With the experience of what happened in the Suez Canal, the cost of the insurance will be reviewed since the Panama Canal assumes responsibility for the navigation of the vessels.”

“With the experience of what happened in the Suez Canal, the cost of the insurance will be reviewed since the Panama Canal assumes responsibility for the navigation of the vessels.”

Maritime logistics expert, Panama

Other costs derived from this incident which insurers, logistics companies and port authorities will now scrutinise are additional damages to cargo and loss of revenue of tax customs agencies. Salvage industry stakeholders have long warned about the increasing size of container ships and the lack of economic efficiency in salvaging them when they face problems. This incident is likely to be a wakeup call for shipbuilders, owners and insurance companies.

The Panama Canal Authority is investigating the blockage of the Suez Canal in the framework established by the protocol of Code for the Investigation of Marine Casualties and Incidents and to better understand if a similar incident could take place in Panama. Naval engineers told the BBC that the Panama canal could face similar problems as its narrower part has a 192 metres width, and cargo ships going through can reach 366 metres and need tugboats to assist them in case of engine failure.

An economist in Panama specialised in maritime trade commented, “There will be an increase in congestion which will lead to an increase in transport costs and insurance, this will be reflected in freight rates which will be passed on to the consumer.”

Importantly, the Panama canal has a different operating model to the Suez canal, as one industry expert commented, “Panama will review procedures but there is an important difference. In Panama, the [Canal’s] pilots take control of the boat and are assisted at all times by the tugboats. In the Suez canal, the [Canal’s] pilot is only a guide and tugboats are not always used. In Panama, the Canal is responsible for the ship, in Suez, the ship has full responsibility. ”

Longer term, could we see a shift from global supply chains to more regional ones? The former marketing director of the Panama Canal believes so, “I think that the transition that has been taking place towards a regionalisation of trade is going to accelerate, since it is difficult to achieve resilience in supply chains that have their origins and destinations so far away.” An economist with expertise in maritime trade agreed, “The EU and US will prioritize their efforts to regionalize and diversify there supply chains.”

“I think that the transition that has been taking place towards a regionalisation of trade is going to accelerate.”

Former marketing director, Panama Canal

The logistics expert sees the growth of technology as a potential mitigation for future blockages, “A few changes need to be made. The main one is depending less on human resources and more on technology. Autonomous ships will better navigate canals, harbours and straits.”

Important Notice
While the information in this article has been prepared in good faith, no representation, warranty, assurance or undertaking (express or implied) is or will be made, and no responsibility or liability is or will be accepted by Deheza Limited or by its officers, employees or agents in relation to the adequacy, accuracy, completeness or reasonableness of this article, or of any other information (whether written or oral), notice or document supplied or otherwise made available in connection with this article. All and any such responsibility and liability is expressly disclaimed.
This article has been delivered to interested parties for information only. Deheza Limited gives no undertaking to provide the recipient with access to any additional information or to update this article or any additional information, or to correct any inaccuracies in it which may become apparent.

Most recent in Infrastructure

The need to restructure infrastructure

Transforming infrastructure in Latin America.

Roseau’s Renaissance

The Roseau Enhancement Project and its complexities in Dominica.

Transforming Brazil’s aviation landscape

Challenges and opportunities in the new growth acceleration programme. 

Mexico’s ‘megareforma’

Balancing public interests and investors' concerns.

Turbulent recovery

Caribbean airports refurbished as international flights return to pre-pandemic levels but regional flights lag.

Smart stadiums

Could technology in use at the World Cup transform Latin America’s stadiums?

Sustainable roadways

Could post-pandemic investment in sustainable road infrastructure plug Latin America’s infrastructure gap?

Aging infrastructure

Floods highlight decades of underinvestment in water infrastructure in the Dominican Republic.

Dollar threat

A strong dollar presents a risk to Colombia’s import-dependent construction industry.

Reinventing the city

Cities across Latin America are investing in urban reform projects to revitalise city centres.