Guatemala and the Panama Canal
Guatemala’ s geographic position means that many companies source inputs from abroad using maritime transportation routes. Because the Panama Canal serves as one of the world’s most important shipping lanes, some companies source goods that arrive through the Canal.
Capacity restrictions announced by the Panama Canal Authority have raised concerns for Guatemala’s manufacturers and importers. While the Canal restriction does not necessarily mean there will be shortages of certain goods, they could face higher logistics expenses and longer lead times due to shipment delays and increased planning complexity.
“This situation generates uncertainty in industrial operations because it can generate impacts primarily on logistics costs and import planning,” said Enrique Font, President of Guatemala’s Cámara de Industria de Guatemala (CIG).
Decreased Panama Canal capacity comes amid lower-than-expected rainfall, which affects water levels along the Canal. In a September 2 press release, the Panama Canal said that daily transit capacity will be temporarily adjusted through September 17. It is also changing its auctioned slot allocation beginning September 3.
Restrictions at the Panama Canal Could Lead to Higher Costs for Manufacturers and Importers
Expected challenges include long wait times for vessels without reserved transit slots and increased competition for available slots, including through the Panama Canal’s slot auction system.
“The companies that participate in these auctions can reach extraordinary costs that are passed along to the logistics chain,” Font added.
For Guatemalan companies sourcing goods from abroad, that could increase costs beyond ocean freight rates. Costs affected by increased transportation lead times and logistics complexity can include:
- Raw materials/components: Production inputs that must be imported may also cost more to transport.
- Finished goods: Importers may pay higher landed costs. Margins could be squeezed further if companies cannot fully pass along increased costs to customers.
- Inventory: Increased transit times or less predictability may impact safety-stock levels.
- Production planning: Production schedules and customer commitments may need to be adjusted if component delays impact manufacturing timelines.
- Competitiveness: Companies with small margins may have less flexibility to absorb higher logistics costs.
The Panama Canal has warned ships that do not have reserved transit slots may experience extended delays until capacity becomes available.
Guatemala Com panies Can Access Atlantic and Pacific Oceans
Guatemala benefits from having two maritime coastlines that connect to the Atlantic and Pacific oceans. By using ports on both the Atlantic and Pacific, Guatemala companies have flexibility in rerouting cargo if necessary.
Font highlighted this fact when he stated that “Guatemala has maritime access routes via both the Pacific and the Atlantic oceans.”
That geographic flexibility may allow Guatemalan companies to be less affected by Panama Canal shortages than companies located in countries more reliant on one primary shipping lane.
But alternate maritime routes are not perfect substitutes. Companies may still need to adjust transportation routes and logistics providers, which still introduces complexity and potential costs.
Longer transit times are also a possibility if alternate routes require containers to travel farther. Alternative ports may also have infrastructure limitations. These are all considerations for companies hoping to avoid disruption to their inbound cargo.
Costs and Challenges Associated with Switching Transportation Routes
Having alternate shipping lanes is good, but companies should prepare as early as possible instead of waiting for a potential shortage to occur. Factors that determine the best routing alternative include:
- Country of origin for the cargo.
- Final destination.
- Current shipping routes being used.
- Destination port infrastructure and facilities.
- Cargo type and volume.
- Availability of carriers to handle rerouted cargo. Carriers may have strategic reasons to keep certain cargo on established routes.
Switching cargo from one route to another is not always easy and may introduce new costs, lead times, and logistics challenges. Safety stock levels and inventory policies may also need to be reevaluated due to longer or less predictable transit times.
For manufacturers who rely on imported materials for just-in-time production, delayed containers can cause production delays even if the merchandise is otherwise available. In that sense, import restrictions at the Panama Canal may cause logistics hurdles rather than outright shortages.
Companies should prepare for increased lead times by analyzing alternative routes before they are needed.
Guatemala Infrastructure May Limit Its Ability to Handle Surges in Cargo
Guatemala has both Pacific and Atlantic ports it can use. However, infrastructure capacity will determine how much cargo those ports can handle.
The issue may be especially prevalent for bulk cargo. If Guatemala’ s Atlantic ports lack the infrastructure to handle large volumes of cargo (or cannot operate at higher-than-average volumes), it may not have the ability to absorb volume from other routes.
Font noted these concerns during a 20 discussion on congestion at Guatemala’ s Puerto Quetzal. Font pointed to accumulated sediment that forced port authorities to limit vessel sizes, as well as berth operations that kept some vessels at port longer than necessary.
The broader point is that Guatemala must have sufficient capacity at its ports, cargo terminals, storage facilities, customs brokers, and inland transportation networks to benefit from alternative trade routes.
Investing in those resources could help mitigate short-term disruptions like the Panama Canal restrictions. But they can also strengthen Guatemala’ s overall competitiveness by improving the investment climate for manufacturers.
What Companies Can Do Today to Prepare for Panama Canal Restrictions
While the Panama Canal situation is fluid, companies can take proactive steps to minimize potential supply-chain disruptions:
- Use multiple transportation routes. If most of your cargo currently transits through the Panama Canal, now is the time to consider alternative routes.
- Map your exposure by identifying which suppliers and supply inputs rely most heavily on Panama Canal shipments.
- Build more lead time into your procurement schedules for raw materials and components that rely on shipments through the Panama Canal.
- Review safety stock levels for goods that could impact production if they’re delayed.
- Use multiple logistics providers and shipping companies. Develop relationships with carriers that use alternative routes through both the Pacific and Atlantic.
- Pre-plan alternative routes through both the Pacific and Atlantic. Wait until after disruptions occur to evaluate your options.
- Assess potential cost increases and build them into your procurement budget and overall operating expenses.
- Plan for contingencies with raw materials and key components. Build contingencies into your supply chain before shortages occur.
Panama Canal also recommends customers make reservations through their reservation systems. A confirmed reservation ensures a guaranteed transit date.
Manufacturers Should Evaluate Logistics Resiliency When Sourcing Locations
Panama Canal restrictions highlight an issue that is becoming more important for manufacturers when they select their production destinations: logistics resiliency.
Labor costs, access to end markets, and competitiveness are important considerations when companies select Latin America as a sourcing destination. Port availability and transportation redundancy are also becoming factors that more companies evaluate when they weigh European or North American locations against opportunities in Latin America and countries like Guatemala.
Strengthening those qualities can help Guatemala continue positioning itself as an attractive FDI destination. Investing in port and transportation infrastructure could help mitigate short-term disruptions like the Panama Canal shortage while boosting Guatemala’ s competitiveness against other regions over the long-term.-terms.