ROB SCHMITZ, HOST:
The war with Iran is causing problems with traffic in another waterway, far from the Middle East. With the Strait of Hormuz effectively closed, pressure on the Panama Canal has increased, And combined with lower water levels, transit prices through the canal are soaring. According to new reporting from the Financial Times, some companies are having to cough up more than $1 million for each trip through the canal. That's more than 16 times what it cost a year ago. Jamie Smyth is the U.S. energy editor for the Financial Times and joins me now.
Hey, Jamie.
JAMIE SMYTH: Hi, Rob.
SCHMITZ: So $1 million to cross the Panama Canal? That - I mean, how is the war in Iran impacting the Panama Canal, which is on the other side of the planet in Central America?
SMYTH: Well, that was actually only the smaller sized ships, this average of $1.1 million that came out last week for a transit. Actually, the larger ships, we're seeing, you know, an even larger amount of money. One of the big tankers that carries liquefied petroleum gas today reportedly paid 4.6 million just to go through on one of these auction slots, and they're like priority slots. So it's really a staggering sum which they're now having to pay to get through the canal.
SCHMITZ: What do these new costs to cross the Panama Canal mean for the global economy?
SMYTH: You know, who's going to pay this? You know...
SCHMITZ: (Laughter) Oil companies, apparently.
SMYTH: It's going to be the shipping companies to start with. But ultimately, you know, it feeds through the economy, and it means higher prices for consumers, which will push up inflation.
SCHMITZ: OK.
SMYTH: So the shipping companies are already passing on these extra costs of the transit. So, for example, MSC shipping line, it just announced it's going to introduce a new surcharge from next month of $376 for a 45-foot container. So the - it'll - that cost will ultimately, you know, fall on large, multinational retailers - think of Walmart or Amazon - who are importing products to the U.S. from Asia. And it'll also fall on trading companies who are shipping products out of the U.S. to Asia, you know, things like grains or soy beans. Also these LNG gases like propane and butane. So it's really going to feed all the way through the economy. And one of the interesting things about the Panama Canal is, of course, you know, about three-quarters of the cargo passing through the canal either originates or is destined for the United States. So it's the American consumer who will ultimately pay.
SCHMITZ: There is a weather element involved in all of this, too, with El Nino. I understand this weather event means less water in the canal. Explain that for us.
SMYTH: That's right. So whenever you get a threat of an El Nino, you know, this causes hotter and drier conditions in Panama. And the canal requires a man-made lake to feed the water into the canal to help the ships actually move through the sort of intricate system of lochs. It needs a lot of water. Now, that lake, called Gatun Lake, is - the water levels are falling. And with weather services predicting a very severe El Nino later this year, the authorities that run the canal have actually implemented a series of restrictions governing how low vessels can sit in the water. It's called a ship's draft. So they've implemented these measures to try and conserve water. And that means that the amount of cargo that ships can actually carry through the canal is falling. And they've also flagged that it might mean that the amount of transit through the canal will fall as well later this year, and that's really pushing up the prices quite a lot.
SCHMITZ: And very quickly, Jamie - we've got about 20 seconds left - any solution on the horizon, or would we have to wait for the weather to cool and the war to end here?
SMYTH: You know, the authorities are trying two solutions. One of them is building a huge pipeline to carry gas. So the tankers would arrive at one end of the canal and they'd offload the gas and move it through the canal and a different tanker would pick it up. They're also looking at water management issues, but that's going to take years. It's early 2030s before that. Until then, shippers will have to look at alternative routes.
SCHMITZ: That is Jamie Smyth, U.S. energy editor at the Financial Times.
Thanks, Jamie.
SMYTH: Thank you. Transcript provided by NPR, Copyright NPR.
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