Port of Pecém Faces Soaring Freight Costs Amid Panama Canal Drought and Red Sea Attacks

The freight for shipping cargo through the Port of Pecém is rising, and the reasons can be traced back to Central America and the Middle East, specifically the drought in the Panama Canal and conflicts in the Suez Canal.

Although unrelated, both events have been affecting global logistics since late 2023. These canals interconnect the world’s major ports, bridging oceans and seas, and are vital for cargo transport across continents.

Experts agree that these events negatively impact maritime shipments to varying degrees, especially in terms of freight prices.

According to Augusto Fernandes, CEO of JM International Business, as early as the start of the year, the cost of goods arriving in Ceará had already risen by up to 50%. Consequently, this increase is expected to be reflected in the final prices paid by consumers.

“Freight costs have already risen. Since the beginning of 2024, there has been a change in freight rates. The increase is direct; shipping companies up freight rates when they add up the effects of the crises in the Red Sea, Panama Canal, and Chinese holiday, depending on the origin, from 25% to 50%.”

This situation contrasts with the positive results seen in 2023. In December, the port recorded its best monthly throughput in history, according to data released by the port itself. The port handled 56,906 twenty-foot equivalent units (TEUs).

El Niño

The effects of the drought caused by one of the strongest El Niños in recent years are not only felt in Brazil but also worldwide. The climate phenomenon hit the Panama Canal, as it typically does during dry periods, but in 2023, the situation worsened.

The Panama Canal is an artificial water passage built in the early 20th century that connects the Pacific and Atlantic Oceans. To correct the difference in water levels between the two, a system of locks, similar to elevators, was built to raise or lower vessels. Much of the freshwater used in the complex comes from Lakes Alajuela and Gatun, exacerbating the problem.

According to Larry Carvalho, a lawyer specializing in logistics, maritime law, and agribusiness, the drought has reduced the lakes’ capacity by 60%, supplying less freshwater and restricting vessel passage, and consequently, the movement of goods.

“The problem with the Panama Canal today is its dependence on water from the lakes to maintain ship navigation and open the locks to the sea. There’s significant water loss when the lock gates open, and due to the severe drought in the region, its capacity has decreased.”

The restrictions in the canal mean that the number of vessels moving between oceans is limited to a maximum of 24 per day. During other drought periods, Carvalho states that 36 ships were able to pass between the Pacific and the Atlantic daily.

Cargo voyages are lengthened in consequence. Operators may choose to wait, pay a premium fee for priority, as has happened, or take a longer route. Either way, all actions affect operational costs, and, obviously, freight rates. The Panama Canal has received $100 million less since October solely from ship tariffs.

One solution adopted is to circumnavigate Cape Horn, at the southern tip of the American continent, significantly increasing travel time. Another option is to use other modes of transport, such as airplanes, trucks, and trains, which significantly raises freight prices.

“Some cargo coming from the Americas, especially from the west coast, may be delayed by ten days or more. With the drought, large ships cannot cross the canal. Some shipping companies have to unload the containers beforehand, transport them via rail or road, and then reload them to pass through,” explains the CEO of JM International Business.

Conflicts in the Red Sea

The impact of the Panama Canal’s drought on the Port of Pecém would have been far worse were it not for the fact that most of the cargo that arrives in Ceará comes primarily from Asia, particularly China.

“Our trade connections with the West Coast of the Americas are not as significant as shipments from China. China is Brazil’s largest trading partner, followed by the United States. Still, talking about Ceará specifically, imports have a lesser impact. If we were in the midst of fruit harvest season, [the crisis] could affect exports,” notes Augusto Fernandes.

The conflict in the Red Sea erupted in October with attacks by Houthis, a military and political group based in Yemen, on the Suez Canal.

The group justifies its actions as a war against the West and Israel. In the Red Sea, the Houthis have been targeting cargo ships and other vessels, such as fuel carriers, disrupting global logistics.

This situation in the Suez Canal forces ships to divert their routes through the Cape of Good Hope in southern Africa, elongating the journey between Asia and Europe and delaying docking schedules.

“The impact is widespread and cascading. With the conflict in the Red Sea, the likelihood of ships traversing the canal drops significantly. Several other factors exacerbate the situation. The distance between Europe, at the Port of Rotterdam, a partner of Pecém, and Asia, at the ports of Singapore and Shanghai, has increased by 4,000 nautical miles. These ports have a direct route to Europe via the Suez Canal. All traffic will now have to circumnavigate Africa before heading north,” points out Augusto Fernandes.

Chinese exporters are already voicing complaints due to increased costs. Some Chinese entrepreneurs import cars from Europe and export vehicles to Africa, both parts and complete units. This has already led to cost hikes. The Secretary of Development of the Chinese Economy has called for a ceasefire because Chinese businesses are already feeling the pressure, with direct consequences. A hiccup in China sends ripples across the globe.

Expensive Containers

According to Larry Carvalho, the price of a single TEU has more than doubled in approximately nine months, skyrocketing from $1,300 to an average of $3,000 in the global maritime market, directly affecting the prices of everyday items for Brazilians.

“These everyday goods from China, including household items, bedding, kitchenware, plastics, and glass, will all feel the impact as maritime freight has doubled in less than a month. The major concern is the ripple effects on inflation indicators from the increased prices seen among imported products. We anticipate a global rise in inflation due to increased freight costs,” he explains.

In Ceará, the specialist in maritime law believes that an increase in freight rates is unavoidable. For cargo to arrive from Asia to the state in northeast Brazil, it must pass through a transshipment hub, usually located in Europe.

“Products destined for Ceará from Asia have traditionally passed through the Suez Canal, as they follow the Asia-Europe route before heading south to the Northeast. With most container carriers suspending travel through the Suez Canal, vessels are now taking a longer route through southern Africa, adding ten more days to the journey and driving up freight costs. Consequently, goods arriving at the Port of Pecém will take longer to reach their destination,” concludes Larry Carvalho.

Source: Diário do Nordeste

Click here to read the original news report: https://diariodonordeste.verdesmares.com.br/negocios/preco-do-frete-no-porto-do-pecem-sobe-ate-50-com-seca-no-canal-do-panama-e-ataques-no-mar-vermelho-1.3472515

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