Title: El Niño: What could it mean for the global economy?

**Leanna Byrne** (0:01)
El Niño is strengthening, and its economic impact is already being felt.

**Ivan Jimenez** (0:05)
We're going to reduce some slots, and that will be affecting the logistic chain across the globe.

**Germain Bahaman** (0:13)
Production will very possibly be affected by the El Niño phenomenon.

**Leanna Byrne** (0:19)
It's World Business Report from the BBC World Service.
I'm Leanna Byrne, with one of the strongest El Niños in living memory developing, and we look at what it could mean for global trade, food prices and the wider economy. US and Canadian negotiators raced to finalise a trade deal, and Premier League clubs have already spent nearly 3 billion dollars this summer, even as new financial rules kick in.
So meteorologists are warning that the El Niño weather event developing in the Pacific could be the strongest in living memory. El Niño pushes up global temperatures and can make extreme weather more likely. Combine that with the effects of climate change, scientists say it's very likely that next year will be the hottest on record and the economic impact is already starting to emerge. The Panama Canal is one of the world's most important trading routes. 14,000 ships use it every year. But its operator says it's going to cut the number of vessels passing through from next month because of low rainfall caused by El Niño. Ivan Jimenez is the canal's transit planning and reservation manager.

**Ivan Jimenez** (1:29)
We're going to reduce some slots and that will be affecting the logistic chain across the globe.

**Luke Wilson** (1:38)
Are you going to have to look at how to keep operating the canal if these weather events and the severity of them get worse and they become more frequent?

**Ivan Jimenez** (1:49)
Yeah, that's basically one of the main reasons we start saving water since December last year. Just taking precautions and thinking for the future, how to sustain the operations in an efficient way.
Also taking into consideration that one of the main goal of the water that we have in the lakes is to supply water for the human consumption of the population.

**Luke Wilson** (2:14)
How do you prioritize which ships get through in situations like this?

**Ivan Jimenez** (2:20)
We will try to distribute the slots, the available slots, between the customers, trying to give all customers the possibilities to obtain a booking slot to go through the Panama Canal.

**Leanna Byrne** (2:35)
That was Ivan Jimenez speaking to my colleague Luke Wilson earlier. Peter Sand is a shipping analyst with BIMCO. He says those restrictions can have consequences far beyond Panama.

**Peter Sand** (2:44)
It is one of the world's most important choke points. So, any change to business as usual has a huge impact.
So, for the Panama Canal, it's not only the number of transits that matters, but also the maximum draft that any ship can do when they perform the transit, because that limits, of course, the amount of cargo they can carry.

**Leanna Byrne** (3:05)
What does that do to the economics of a voyage?

**Peter Sand** (3:08)
You need to find alternative routeings, so it does, of course, make it more restricted in terms of going through. So, alternatives, for instance, for whether that's containers or tankers or bulkers, for that matter, in particular, bulkers going from South America, West Coast to North America, East Coast, they have no alternative but go through, right? Or sometimes they wait, sometimes they pay more. But in essence, it's about the alternatives, and all alternatives come with an added price tag. Prices are rising.

**Leanna Byrne** (3:36)
Well, the average price of getting through the canal reportedly hit about $1.1 million this month. That's more than 16 times what it was a year ago. So are all those alternatives, the add-ons, does that contribute into the price?

**Peter Sand** (3:49)
Someone's got to pay in the end. So depending on the cargo the ships carry, that will be, of course, passed on to the end consumer, depending on whether this is a high profit margin good or a low profit margin good. So it really, really depends on whether you ship grains for feeding your farm animals, or you bring in electronic goods to the American consumer in, well, living in Houston, for instance.

**Leanna Byrne** (4:09)
I wonder, Peter, at what point does it become cheaper for a shipping company simply to void Panama altogether and just take the longer route?

**Peter Sand** (4:16)
Demand calls the shots. So if someone is prepared to pay for that shorter voyage, which is basically the raison d'etre of the Panama Canal, right, the shorter transit time of bringing produce from where it's manufactured or grown to the market, we will see a separation of priority for those that actually own the cargo, right? So we're already seeing container carriers, for instance, setting up additional services to go around the Cape of Good Hope instead of via the Panama Canal, even though they are a priority ship type going through, demand is strong enough so they can set it around the Cape of Good Hope and freight rates are massive into the US East Coast, setting you back like $10,000 for one container right now.