Canals are the veins of civilization, carrying the lifeblood of trade, culture, and progress to every corner of the globe.
Global Shipping Industry plays a major role in the transport of goods across the world. As transporting goods via sea is comparatively cheaper than transporting by land, sea routes play a major role in the operation of international trade across the world.
Our earth is not all sea as there is a significant amount of land mass which obstructs the sea ways and to overcome this discontinuity, we have built canals which connect two large seas or oceans. These canals play an important role in ensuring that trade and travel continues despite the obstacles. We all have learnt in school the famous journey of Vasco da Gama from Portugal to India via the Cape of Good Hope. If there was a Suez Canal, Vasco da Gama would have reached India quite early as he wouldn’t have to take the longer route via Cape of Good Hope.
However, canals which were built to ensure easier access to international goods are facing a rising threat of climate change. Increasing effects of climate change could possibly threaten the operations of canals.
In this blog, we will be talking about how the drought in Panama has impacted the operations of the Panama Canal and we raise the very important question that what lessons business owners should take from the crisis in Panama.
PANAMA AND ITS CANAL
"The Panama Canal has made an enormous difference to world trade, and it has changed the lives of people both in Panama and in the world." - Felipe VI King of Spain
Panama, a Central American Nation connecting the two major continents of the world i.e., North America and South America plays a very important role in world trade. It does so by operating the Panama Canal, which joins the Pacific and Atlantic Ocean. Because of the Panama Canal, ships do not need to go around South America to reach the Pacific Ocean but can pass through the canal reducing travel time, costs and generating good revenue for the nation.
DROUGHT IN PANAMA
"The recorded precipitation for October has been the lowest on record since 1950 (41% below), and so far, 2023 ranks as the second driest year for the same period." - Panama Canal Authority said.
Panama has currently experienced the driest October since 1950 and as a result water levels in the Panama Canal have reduced significantly. As water levels were reducing in the canal, the Panama Canal Authority has been forced to reduce the number of ships using the canal.
If you look at the data, almost 13,000 to 14,000 ships use the canal annually, and any impact on the operations of the canal will have devastating consequences for global trade.
Each Canal has a lock which helps to raise or lower the level of ships, however the water required for operating the lock system comes from Gatun Lake which is dependent on rainwater as October has been one of the driest months, operation of the canal has become extremely difficult. Source info here.
IMPACT ON BUSINESS
“With a reduced transit schedule and an average of 26 daily arrivals by commercial ships per day on the Pacific side of the canal, and an average of 8 daily arrivals by commercial ships per day on the Atlantic side of the canal, the likelihood of cargo waiting idle will increase.” - Captain Adil Ashiq, head of North America for Marine Traffic.
A canal which is not operating at full capacity will indeed have a great impact on business.
The following impacts are possible on business operations due to the reduced operations of the canal.
1. Increased Cost of transportation: As we discussed earlier, the sea route remains a cheaper mode of transportation than land, if ships are unable to travel then either goods would have to be transported via land across Panama or would have to travel around South America thereby dramatically escalating the costs.
2. Disruption in Supply Chain: A supply chain network currently exists all over the world, however if the canal is not operational then a disruption in supply chain will indeed occur which will impact the delivery schedule of goods.
3. Threat to Life: More specifically to the Panama Canal, the Cape of Good Horn at the southern tip of South America is one of the most dangerous places for sea travel compounding the risk factor for organizations.
4. Reduced revenue for Panama: Panama earns a good amount of revenue by operating the canal however if the canal ceases to operate then Panama will lose a large amount of money which can be detrimental to the nation’s economy.
WHAT'S THE LESSON FOR ORGANIZATIONS?
"The key to risk management is never putting yourself in a position where you cannot live to fight another day." - Richard Branson, British Entrepreneur
Organizations can take plenty of lessons from these developments in Panama to prepare themselves better for these situations and maintain business continuity.
1. Risk Assessment: As an organization it is very important to address risks internally but also external risks which can impact your organization. As a business owner, if my goods are supposed to be transported through the canal, and due to any reason if the canal is not operational what am I going to do? Every business owner must have an answer to this question before starting operations.
2. Risk Mitigation: A Risk Mitigation strategy is important to have once a risk has been identified. So, if my operations are facing a risk, how do I mitigate it so that the end customer is not impacted?
Without having a Risk mitigation strategy in place, organizations are placing a huge risk on their operations and as we say a disaster is always unexpected but better preparation can help us mitigate the losses.
One way this crisis on the Panama Canal could have been addressed is by monitoring the water levels in the Gatun Lake and by taking immediate action if the levels were dropping low to ensure Panama Canal does not face any threat to its operations.
As we saw a disaster can take shape in various forms, the example which we saw from Panama showing us that maybe we have put all our eggs in one basket. What if Panama Canal shuts down? Do we have alternate options ready?
The most important aspect being do we think of alternate options once a disaster strikes or well in advance. By reading this blog, I think we all understand it is important to have a plan in place before disaster strikes.
Gorisco has a wide range of experts who are experienced in defining and designing various solutions to help organizations mitigate their risks and resolve their problems.
At Gorisco, our motto is 'Embedding Resilience,’ and we are committed to making the organizations and their workforce resilient. Reach out to us if you have any queries, clarifications, or need any support on your initiatives.
To read our other blogs, click here. More importantly, let us know if you liked them or not through your comments.