Transportation Woes: Grain exporters struggle with rising prices & backlogs along the shrinking Panama Canal
American agricultural exports will soon slow down as the Panama Canal dries up.
The El Niño weather event has caused a severe drought along the Panama Canal, resulting in the driest October for the system in seven years.
It is causing a shipping backlog as well as increased prices for U.S. agriculture exporters. However, with waterways backlogged, a tandem rise in rail prices, and looming limits on trucking emissions, agricultural exporters are in a bit of a Catch-22 when it comes to getting their products out of America to their foreign buyers.
Paying to Play on the Panama Canal
Travel capacity along the waterway has been reduced to 24 ships per day through the end of November. Typically, 36 to 38 ships can travel through the major North American trade route daily.
Experts predict the waterway’s capacity will continue to drop throughout the rest of the year and into 2024, which will put further limits on exports through this important trade corridor. According to officials from the Panama Canal Authority, they expect capacity to fall to a low of 18 vessels per day.
Now, passages are being awarded to companies willing to pay up for passage — one Japanese company even shelling out a record $4 billion in order to jump the line!
Off The Rails: Rail Prices on the Rise
As grain ships wait in line, many are turning to rail as an alternative, but the latest prices reveal that could soon change.
According to the USDA’s latest Weekly Grain Transportation Report, grain-hauling rail cars now cost more than $600 per month to lease for five to seven-year terms. In 2020, rates were $400 per month. The department says the increase could be due to fewer available cars now, interest rates, and poorer rail service.
Complicating Matters? Tougher Policies on Trucking Emissions
New rules on zero-emission trucks in California could also soon increase costs for ag exporters.
Also in the new year, port leaders will face what are considered to be the most stringent requirements ever enacted under the Advanced Clean Fleets Rule, which bans the sale of new diesel-powered truck engines and requires truck companies to transition to electric.
The California Farm Bureau fears this will lead to port delays and foreign buyers will move their interest to quicker, cheaper options.