Several large shipping companies have decided not to allow their vessels into the Red Sea on the way to the Suez Canal. Yemen’s radical Houthi group has threatened ships in the area. The group has long-range missiles. As more and more ships move to an alternate route that goes south to the Cape of Good Hope, the time they travel increases by several days. The problem is serious enough. However, at the same time, this global supply chain crunch is worse because of another canal.
The world’s other largest canal–the Panama Canal–cannot take anywhere near the number of ships it usually does because of severe drought in the region. The specter of global inflation, which has dropped sharply in the last two years, has reappeared.
While it is not clear what the drop in traffic through the Suez Canal will be because of potential attempts by the US and other countries to use their ships to protect free passage, the number for Panama is precise. The area around the canal received more rain than expected in November. According to Reuters, “From mid-January, the canal authority said in an advisory, it will have 24 transit slots per day, compared to the 18 it had planned in a prior announcement.”
About 12% of the world’s shipping tonnage goes through the Suez Canal and about 30% of the world’s global container traffic. Panama Canal traffic is about 5% of the world’s tonnage. The supply chain disruption is huge if even a modest amount of this traffic drops..
Geopolitical events, taken together with climate change, affect the global economy more and more often. Usually, these are linked. A hurricane in Florida caused an insurance company to end coverage for residential real estate. A migration of climate refugees causes a government decision, often an expensive one, to use military forces or police to block the migration.
In the case of the Panama Canal and Suez Canal, the events are not linked. They are, however, a terrible coincidence.