A cargo ship passes through the Panama Canal's Agua Clara locks on Gatun Lake in Colon, Panama, on April 14, 2024. The number of ships allowed through the drought-hit Panama Canal each day will be increased thanks to signs of an improvement in water levels, authorities said on April 15, 2024. Image: Martin Bernetti / AFP

It has been a bad year for global trade logistics, with Houthi attacks in the Red Sea, drought in the Panama Canal and further shipping chaos in the form of the Francis Scott Key Bridge collapse in Baltimore. Falling water levels in Gatun Lake, which provides water for the system of locks on which the Panama Canal depends, have forced authorities to restrict the canal’s capacity. Vessels are required to pay large fees in order to cross, and many are waiting up to a week in line to do so. This adds exponentially to costs and further disrupts global supply chains.

Currently, the canal allocates part of its capacity to pre-booked slots, which often end up with the big container shipping companies such as MSC, Maersk and Costco, securing that (at least some of) their ships will cross the canal in a timely manner. Whatever non-booked capacity remains is auctioned to the highest bidder.

In November 2023, one desperate ship bid $4 million — and still had to wait a week to get a slot. Other ships gave up and chose much longer alternative routes.

The current system not only favors the highest bidder, it also gives all funds to the canal authority and no compensation to ships that have been waiting for a long time.

[This article has been reproduced with permission from IESE Business School. www.iese.edu/ Views expressed are personal.]

QOSHE - A fair bidding system to reduce the squeeze in a drought-stricken Panama Canal - Mihalis G. Markakis
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A fair bidding system to reduce the squeeze in a drought-stricken Panama Canal

10 28
25.04.2024

A cargo ship passes through the Panama Canal's Agua Clara locks on Gatun Lake in Colon, Panama, on April 14, 2024. The number of ships allowed through the drought-hit Panama Canal each day will be increased thanks to signs of an improvement in water levels, authorities said on April 15, 2024. Image: Martin Bernetti / AFP

It has been a bad year for global trade logistics, with Houthi attacks in the Red Sea, drought in........

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