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Because two lakes in Central America have too little water, ships are only allowed to pass through the Panama Canal with part of their cargo. In the medium term, this could disrupt transport routes worldwide. The head of sea freight at Kuehne & Nagel, Otto Schacht, calls on the industry to take action.
“I’ve only experienced that once in my 45 years in the industry,” says Horst Joachim “Otto” Schacht, longtime head of the sea freight division at Kuehne & Nagel, one of the world’s largest logistics groups. The last three years have been a huge challenge for sea freight, mainly because of the Covid crisis. In addition, the cargo ship “Ever Given” had blocked the Suez Canal between the Mediterranean and the Red Sea for a few days.
Because 80 to 90 percent of goods are moved across the sea today, disruptions to sea lanes have a major impact. The consequences were delayed or canceled transports, causing supply chains all over the world to become confused. This was felt not only by industrial companies that lacked machines, raw materials and parts. Customers also faced empty shelves in department stores and unspecified delivery times in online shops. The effects can still be felt today.
A quarter less goods
A new problem arose this year: the Panama Canal, which connects the Atlantic and Pacific Oceans in Central America, has too little water to transport the huge ocean freighters safely through the canal. The reason for this is the lack of fresh water. The locks of the canal are fed from two large lakes.
It takes around 200 million liters of water to go through a lock – and that for each of the around 13,000 ships that sail through the canal every year. However, due to prolonged drought and lack of rain in traditionally wetter seasons, the lakes were unable to store enough water. In addition, one of the lakes is itself part of the canal – and because it has so little water, the ocean liners are in danger of running aground. The canal operators have therefore decreed that ships may only sail through the canal with 75 percent of their normal cargo. This order has just been extended until at least the end of August. The problem: Each container that is not loaded causes additional costs.
Cooled economy helps a bit
Otto Schacht does not want to speak of a new crisis here. “The customers should hardly notice anything,” says the experienced logistician. This year, the somewhat cooled global economy has helped; there were fewer containers on the road anyway. And should there be restrictions again next year, the industry has alternatives, says Schoch.
Some of the goods may travel overland by train or truck across the US – or be sent on the lengthy route past Cape Horn on the southern tip of South America. That would significantly lengthen the transport and make it more expensive. It’s bearable if it doesn’t take too long.
Climate change is noticeable for sea freight
The much bigger problem is something else: “For the first time, sea freight is experiencing climate change first-hand.” Schacht has long been an advocate in the industry for sea freight to switch to more environmentally friendly ships. Today it is still responsible for five percent of global CO₂ emissions.
Legend:
The Northwest Passage in the Canadian Arctic. The route connects the Atlantic Ocean with the Pacific.
KEYSTONE/ Jonathan Hayward
For several years, the ice in the Arctic has been melting more and more in the summer months. As a result, ships can sometimes pass through the so-called Northeast and Northwest Passage for a few months without an icebreaker, depending on the weather conditions. Ice-free passages in the north would shorten shipping routes between Asia and Europe/USA. At the moment, however, this route is hardly used commercially.
The head of the Kuehne&Nagel sea freight division, Otto Schach,t says that using these routes in the next 50-60 years does not make any economic sense. He hopes it will stay that way: “It would be a catastrophe for humanity if the route remained ice-free.” If the ice were to continue to melt, Kuehne & Nagel and other transport companies would not use these routes so as not to further endanger the fragile environment. “We will not load containers onto ships using these passages.” You have committed yourself to the «Arctic Corporate Shipping Pledge».
This “oath” obliges affiliated companies to work to protect the Arctic. They should work to reduce emissions in the transport sector in general. In addition, companies that manufacture consumer goods should not hand over these goods to any transport company that travels through the Arctic. In turn, affiliated transport companies refrain from booking containers on these shipping routes and do not send their own ships via the Northwest or Northeast Passage.
Otto Schacht does not believe that the Panama Passage will become impassable in the long term: “The canal has not yet been closed and probably won’t be,” he says. At best, the route will become unprofitable for many shipping companies over time. Significantly larger ships can already sail through the Suez Canal.
«Sea freight must also fight for climate goals»
However, further challenges from climate change await. Researchers predict extreme weather phenomena on the shipping routes, flooded or silted up seaports, destroyed distribution networks in the hinterland. The logistics expert says: “Ocean freight, if at all, will only be affected in 50 to 100 years.” He therefore does not want to talk about how the industry should prepare for possible future effects of climate change. “First of all, we have to do everything we can to ensure that it doesn’t get that far. We have to do everything we can to stop global warming,” Otto Schacht says to his successor, to whom he will hand over the helm of Kuehne & Nagel’s sea freight division later this year.
Horst Joachim “Otto” Schacht
Kuehne & Nagel Executive Vice President Sea Logistics