Panama’s issues with canal drought, will impact negatively on MOODY’s credit rating.

Economy

A worsening of the phenomenon would affect exports of raw materials and goods from the US East Coast and the Gulf of Mexico, such as grain, oil and gas.

Moody’s Investors Service warned that the drought crisis presented by the Panama Canal will be aggravated by the return of the “El Niño” climate phenomenon this year.

In a report dated at the end of August, it states that this deep-sea port is already experiencing “immediate” negative effects.

This mainly affects importers of raw materials and dry products, in bulk, but also on goods that are shipped in containers.

Container ships are reducing their loads causing delays that may “moderately” disrupt supply chains in the very short term.

The Panama Canal Authority will maintain restrictions for the remainder of this year and until 2024 in an attempt to save water.

The Canal has limited the “draft” or maximum depth of anchored ships, and also reduced the number of shipments it receives, in what represents a key point for global trade with the route that unites the Atlantic and Pacific oceans.

If the negative impacts persist for a longer time, in addition to the lower volumes handled, there will be “less demand for maritime transport, since more than 80% of world trade is delivered by sea.”

“We believe that the prospect of restrictions for an extended period will increase transportation prices and the availability of grains, petroleum products, liquefied natural gas and petroleum products (as well as) certain chemicals,” he maintains.

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Global in scope

A worsening drought resulting from the “El Niño” weather phenomenon poses significant risks to global supply chains in general and to the world’s largest economy, the United States, in particular.

Although the current forecast indicates that the water level of the Canal will recover slowly, even increasing in this month of September, the absence of rain would result in even harsher conditions in terms of restrictions.

“The negative credit effects in this scenario are difficult to quantify,” the credit risk agency states in its analysis.

A worsening of the drought would particularly affect exports of raw materials and goods from the US East Coast and the Gulf of Mexico, such as grain, oil and gas.

Imports of goods that Asia sends to the United States would also be impacted.

“The prolonged absence of rain would cause a crisis in the supply chain similar to the interruption experienced after the pandemic,” Moody’s asserts in its analysis, signed by Daniel Harlid, vice president analyst of the firm.

Also by the certified analyst, CFA, Adrián Garza, vice president credit officer, and by the senior vice president, Stanislas Duquesnoy.

The repercussions of the meteorological phenomenon in the Canal would also affect ports and global maritime transport, which will have difficulties in mitigating physical climate risks.

“The only way for manufacturers to directly reduce their sensitivity to physical climate risk is to begin regionalizing supply chains by sourcing and producing some goods closer to home,” the analysts assert.

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