Drought-hit Panama Canal hampers Korean exporters

Panama Canal [Photo by Park Sang-sun]

The Panama Canal, which connects the east and west of the Americas, is drying up due to a severe drought, leading to restricted passage and disruption in the transportation networks for South Korean exporters.

According to the U.S. logistics industry on Monday, there has been a surge in requests from Korean companies for air freight transportation instead of conventional sea shipments.

Depending on the item and amount of cargo, air freight rates can be anywhere from three to ten times more expensive than ocean freight rates. This is why over 97 percent of export volumes are traditionally transported by sea.

Normally, it takes 30 days to travel from the port of Busan to the port of Savannah, Georgia, but it is currently taking about 45 days due to the drought in the Panama Canal.

On November 1, the Panama Canal Authority announced a reduction in daily transit from 32 vessels to 18 vessels starting February next year.

This tightening follows a half-year period since July when the transit was reduced from 36 to 32 vessels per day.

The canal relies on water from the adjacent Gatun Lake to move ships, necessitating these measures due to decreasing water levels caused by the drought.

Particularly affected are the suppliers of major Korean conglomerates that run factories of finished goods in the Eastern U.S., according to an industry insider.

In the Eastern U.S., Hyundai Motor Co. and SK on Co. operate manufacturing bases in Alabama and Georgia, among other areas. Their suppliers are sourcing components through Korean or local production.

“If the Panama Canal drought persists long-term, it could change shipping routes,” an industry source said. “The most likely scenario is that cargo from Korea will be unloaded on the west coast of the Americas and then travel overland to the east.”