The Panama Canal is a vital part of worldwide shipping. It connects the Atlantic and Pacific Oceans, allowing ships classified as Neo-Panamax ships to move from the Atlantic Ocean to the Pacific Ocean or vice versa.

A Neo-Panamax ship is the largest ship that can go through the Panama Canal, carrying up to 14,000 containers. Because of a severe ongoing drought, the Panama Canal is imposing load restrictions and higher fees for vessels going through the canal.

Beginning May 24, 2023, the Canal imposed a draft limit for Neo-Panamax ships of 44.5 feet. This limit was further reduced on May 30th to 44 feet.

The normal draft for Neo-Panamax ships is 50 feet. The 44-foot draft restriction is expected to reduce the cargo on these container ship by 40%.

Most of the traffic through the Panama Canal is by companies out of the US, Japan, and China. Common routes through the Canal are from Asia to ports in Europe and the US East Coast.

Most alternatives to the Panama Canal have drawbacks.

The first alternative is routing around South America through Cape Horn. In addition to the miles added, it is a dangerous route.

The other alternative is a land bridge, where containers are transported across the continent from one ocean to the othertypically by rail. The Mexican Land bridge is shortest. There are also several land bridges across the US, and one across Canada. The obvious drawback to this method is the required unloading and reloading of containers.

The Panama Canal, because it is the most direct route, and because it bypasses the complicated logistics of the land bridge option, generally offers a timely and cost-effective method of shipping cargo.

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1. What will be the impact of the load restriction imposed by the Panama Canal?

2. What advice would you offer companies that use the Panama Canal for shipping?