Valuetainment


Panama Canal Crisis - How it Impacts the World Economy


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Summary

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40% of the stuff you and I buy comes through the Panama Canal, and due to the drought that they are having over there, ships are stuck in that winter slump. Just in July, it was taking 5.5 to 6.5 days for a ship to transit through the canal, whether it was northbound or southbound. Now, it s taking 18 to 21 days.

Transcript

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00:00:00.000 So I don't know if you're following the story on what's going on in Panama Canal, but it's very problematic.
00:00:03.580 Forty percent of the stuff that you and I buy comes through the Panama Canal.
00:00:07.460 And due to the drought that they're having over there, ships are.
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00:00:34.100 Waiting.
00:00:34.660 Just in July was taking five and a half days to six and a half days for ships to transit through, whether it's the northbound or the southbound transit.
00:00:41.960 That five and a half to six and a half days is now 18 to 21 days.
00:00:46.340 And you and I are buying this stuff.
00:00:47.960 So a lot of ships have to go all the way around.
00:00:50.060 Big problem.
00:00:51.160 A couple years ago, if you remember what happened to Suez Canal, that's a great case study to see how bad it's going to be here.
00:00:56.100 We're going to take a deep dive on what's going on with the Panama Canal and how it can affect you.
00:01:00.340 Okay, so if you get value out of this video, give it a thumbs up and subscribe to the channel.
00:01:03.520 Let's get right into it.
00:01:04.320 Let me give you some facts here on what we're looking at.
00:01:05.920 Number one, I told you, 40% of containers that come to U.S. travel through the Panama Canal.
00:01:11.320 6% of all global trade goes through the canal.
00:01:14.380 And Panama Canal is the busiest canal in the world, handling over 14,000 ships per year.
00:01:19.740 By the way, if you've never been there, I've been there before.
00:01:21.380 It's an incredible experience seeing how ships are elevated.
00:01:25.200 Water is used to elevate ships or lower ships.
00:01:28.980 That's the whole concept of the canal.
00:01:30.640 It's unbelievable what it does and how important it is to U.S., specifically you and I, when we're buying stuff.
00:01:35.460 The canal is expected to reach capacity by 2030.
00:01:38.700 And the expansion of the canal, which they're talking about, is expected to cost $5.25 billion and take five years to complete.
00:01:46.520 The Panama Canal is the busiest canal in the world, handling over 14,000 ships here, which is roughly 40 ships a day.
00:01:52.520 And this past July, the number of ships allowed to pass per day was lowered from 40 a day, give or take, to 28 to 32 a day.
00:01:59.940 So now, what does this mean?
00:02:01.240 If you look at this map here, you'll notice there's two ways for ships to come through from New York to California.
00:02:06.900 So if you look at it, the short way is New York, ship comes down, goes through the Panama Canal, and goes straight to L.A.
00:02:13.160 If the canal is problematic, these ships have to go all the way south, all the way south, and then come up to L.A., California.
00:02:23.260 And let's look at what that really costs, how long it takes, what's the problem with that.
00:02:27.000 Here's what it looks like.
00:02:28.120 With the Panama Canal, it's only 4,970 nautical miles.
00:02:32.540 Without it, it's 12,350.
00:02:35.800 With the canal, it's only 10 to 14 days to go from New York to California.
00:02:39.940 Without it, it's 30 to 35 days.
00:02:42.000 With it, it's only $262,000, roughly, fuel cost.
00:02:46.120 Without it, it's $705,000.
00:02:48.920 With it, it's calm conditions.
00:02:51.660 Without it, it gets violent at the bottom when they're going through.
00:02:55.440 So obviously, when you look at that number, it's kind of like, imagine you're trying to go home, and the main freeway's closed.
00:02:59.660 Okay, where typically you're going home, it takes you 20 minutes to go, then it'll let you say 5 miles, and it costs you 10 bucks for gas prices.
00:03:05.760 Now, if the freeway's closed, you have to go all the way this way, go all the way around.
00:03:10.100 How many more miles is it?
00:03:11.240 How much more time is it?
00:03:12.340 How much more gas are you going to spend?
00:03:13.720 That's exactly what's going on here.
00:03:15.520 But here, they're bringing goods through canal.
00:03:17.740 Now, watch what happens if they're going from China, Shanghai, to New York.
00:03:21.440 Here's what it looks like with the canal as well as without the canal.
00:03:24.000 With it, it's roughly 12,000 miles.
00:03:26.920 Without it, it's roughly 19,000 miles.
00:03:29.280 With it, it takes 22 to 25 days without it.
00:03:32.200 It takes 35 to 40 days.
00:03:34.360 With it, it's only $600,000 of fuel cost.
00:03:37.300 Without it, it's roughly 900,000.
00:03:39.420 Again, conditions calm with it, violent without it.
00:03:43.140 So obviously, it doesn't take a mad genius to say, I would much rather go through Panama Canal because it's going to be the most effective way.
00:03:48.540 Now, to understand the importance of Panama Canal, how political of a project this was, how many people's lives and businesses' lives had changed, we have to go back and study the history of the Panama Canal.
00:03:59.140 Here's what we learned.
00:03:59.920 The idea of a canal across the Isthmus of Panama was proposed in the early 16th century.
00:04:04.120 However, it wasn't until 1880 that a French company began construction on a canal and the project was abandoned due to engineering challenge and financial problems.
00:04:12.500 In 1904, the U.S. took over the project and completed it in 10 years in 1914.
00:04:17.060 The canal was a major engineering feat and it revolutionized global trade.
00:04:22.060 The canal was also a major strategic asset for the United States during World War II.
00:04:26.260 It allowed the U.S. to rapidly deploy ships and troops between the Atlantic and the Pacific Oceans.
00:04:31.460 In 1977, the U.S. and Panama signed the Torrios-Carter Treaties, which transferred control of the canal to Panama in 1999.
00:04:39.580 Now, you and I, we're just watching this video or living our lives.
00:04:42.320 We don't know what it took to build a canal.
00:04:44.140 We just kind of sit there and say, what's the big deal?
00:04:45.620 It's just a canal. It's not like it's that complicated of a project.
00:04:48.300 Do you know how many people died building a canal?
00:04:50.220 22,000 people died during the French construction efforts.
00:04:54.660 And an additional 5,609 people died during the American construction for a total of 27,609 people died building the Panama Canal.
00:05:05.740 So you may ask, what did they die from?
00:05:07.720 One, the explosive for the way you have to do to build a canal.
00:05:10.960 It's not the easiest thing to do.
00:05:12.000 They died from mosquitoes.
00:05:13.260 They died from malaria.
00:05:14.360 They died from black vomit, internal bleeding, back pain, extreme thirst, a lot of different things.
00:05:18.800 This was not the safest conditions for these guys to build what they build.
00:05:23.560 We benefit from it on the backs of 27,000 people that died building the Panama Canal.
00:05:28.760 In other words, they did the impossible.
00:05:30.740 We're the beneficiaries of their efforts.
00:05:33.320 Pretty wild when you think about it.
00:05:34.600 But how does the Panama Canal work?
00:05:36.020 So the Panama Canal allows ships to transit between Atlantic and Pacific Ocean without having to navigate the violent waters around the southern tip of South America.
00:05:43.680 So one of the coolest things is while you're there, they have a nice hotel, the Hard Rock Cafe.
00:05:47.360 They have a Hard Rock Hotel there right next to Roberto Duran's restaurant.
00:05:51.040 And they'll say, hey, it's the only place in the world where you can go have breakfast at the Atlantic and have lunch at the Pacific.
00:05:56.360 That's kind of what you get to do.
00:05:57.640 And it's what a lot of people do when they go there for vacation.
00:05:59.660 So now the lock system, the canal uses a system of locks, large chambers that can be filled or emptied of water.
00:06:06.300 When a ship enters a lock, water is either pumped in to raise the ship or let out to lower the ship,
00:06:11.760 enabling it to transit from sea level up to the level of Gatton Lake, an artificial lake created for the canal,
00:06:16.780 and then back down to sea level on the other side.
00:06:19.160 So each vessel that passes through uses roughly 51 million gallons of water from the lake.
00:06:25.400 So if you look at this chart here to the left, you'll see the Atlantic Ocean.
00:06:28.160 To the right, you'll see the Pacific Ocean.
00:06:29.840 Then you have the Miraflores Lake.
00:06:31.460 It's elevating the ship to Gatton Lake and then decreasing, lowering the ship to go to the Atlantic Ocean.
00:06:37.360 The entire transit through the canal takes roughly eight to 10 hours, depending on various factors.
00:06:42.560 Again, pretty intense for what these guys have built.
00:06:44.740 Absolutely insane for engineers to have built something like this.
00:06:47.720 Number two, time and money saved impact on global trade if the canal were inaccessible.
00:06:53.220 So obviously the first one would be the diversion of routes.
00:06:55.240 The second one would be increased costs.
00:06:56.720 Then it would be supply chain disruptions.
00:06:58.860 Economic impact countries and ports that rely heavily on trade through the canal would suffer economically.
00:07:04.720 Potential price increases to you and I.
00:07:06.460 We would be paying more.
00:07:07.560 The increased cost of shipping goods could lead to higher prices for consumers around the world,
00:07:11.480 especially for products heavily reliant on these shipping routes.
00:07:14.980 So what are some of the products?
00:07:16.000 Let's take a look.
00:07:16.920 Top 10 U.S. imports.
00:07:18.080 Number one, printers.
00:07:19.040 $14 billion of printers.
00:07:20.860 Then it's TVs, then car parts and sweaters, furniture, video games, pills, computers, toys, shoes.
00:07:26.800 And if you look at the top 10 U.S. imports purely by weight, furniture, 4 million metric tons.
00:07:31.840 Then it's bananas, artwork, car parts, coal, beer, oil, tires, seats, tiles.
00:07:37.620 And by the way, how long can bananas sit there?
00:07:40.260 Think about it.
00:07:41.040 You think banana can sit there for three weeks?
00:07:42.780 You ever have banana at the kitchen?
00:07:43.880 You leave it there for three weeks?
00:07:44.880 What happens to it?
00:07:45.580 Imagine we're talking 2.8 metric tons of bananas sitting there for 21 days.
00:07:50.620 Now watch the exports, what this looks like.
00:07:52.540 We're shipping it out.
00:07:53.460 Top 10 exports by value.
00:07:54.820 Number one is cars, plastic, construction machinery, car parts, cotton, scrap metal, nuts, pork, wood pulp, lab equipment.
00:08:03.360 And if you look at it by weight, number one is scrap paper, scrap metal, wood pulp, plastic, hay, fresh paper, cotton, sugar, soybeans, chicken.
00:08:11.520 This is catastrophic if this goes from taking five and a half days to six and a half days to 18 to 21 days.
00:08:18.880 So by the way, you may be saying, Pat, I got 17 different problems I'm dealing with right now.
00:08:21.800 You want me to be thinking about the Panama Canal.
00:08:23.360 Why should this matter to me?
00:08:24.480 Why should I learn more about this?
00:08:25.760 Because do you remember what happened to the Suez Canal when that one ship was stuck?
00:08:29.940 And every minute of the day, we were watching the news showing us about this one ship in Suez Canal
00:08:35.080 and why you and I should be worried about it and how everybody was talking about it.
00:08:39.620 And that's why that case study is preparing us for that not to happen with Panama Canal.
00:08:44.520 On March 23rd, the ever given ship, a container ship ran aground in the Suez Canal blocking one of the world's busiest shipping lanes.
00:08:51.780 The ship was en route from China to Netherlands when it ran aground in a strong windstorm.
00:08:56.080 It took six days to free the ship during the time an estimated 400 ships were delayed.
00:09:00.720 The blockage caused an estimated $9.6 billion in losses to global trade.
00:09:06.780 To tell you crazier stats about this, how much do you think the blockage of the Suez Canal cost losses per hour?
00:09:13.640 $10 million an hour?
00:09:14.760 $100 million an hour?
00:09:16.000 How about $400 million an hour?
00:09:18.600 The blockage delayed the delivery of essential goods such as food, medicine, and fuel.
00:09:22.080 And it also caused a spike in the price of oil and other commodities.
00:09:24.900 It also highlighted the vulnerability of global economy to disruptions in shipping.
00:09:29.480 What this incident of ever given in Suez Canal taught the world a number of lessons about shipping and logistics,
00:09:34.960 including the global economy is highly dependent on shipping.
00:09:38.140 Shipping disruptions can have a significant impact on the global economy.
00:09:41.180 There's a need for increased investment in alternative shipping routes.
00:09:43.860 There's a need for better risk management and shipping.
00:09:45.900 There's a need for better communication and cooperation between shipping companies and governments.
00:09:50.060 And by the way, just like the Panama Canal was revolutionary, so was the Suez Canal.
00:09:53.720 Here's why.
00:09:54.260 The Suez Canal is a man-made sea-level waterway between the Mediterranean Sea and the Red Sea.
00:09:58.100 It connects the Indian Ocean with the Atlantic Ocean through the Red Sea and Mediterranean Sea, respectively,
00:10:02.620 and provides the shortest sea link between Europe and Asia.
00:10:05.260 If you look at this map, you'll notice you can either go from Mumbai to London all the way around south through Africa,
00:10:11.420 or you can go through the Suez Canal straight shot to London and save yourself 50% of the route.
00:10:18.100 It was built over 10 years in the mid-19th century.
00:10:20.480 The canal officially opened up November 17 of 1869.
00:10:24.300 Originally constructed without locks, the canal was converted to a lock system.
00:10:27.820 In 1980, roughly 110 years later, the Suez Canal is one of the world's most strategically important waterways
00:10:33.340 and is vital to global trade.
00:10:34.920 The canal is also a major source of revenue for Egypt, which operates and maintains it.
00:10:38.820 So now, this is a lot of problems we're talking about.
00:10:40.940 Is there any solution?
00:10:41.960 Are they making any kind of progress?
00:10:43.380 What's going to be happening?
00:10:44.360 You don't want to be affected by this.
00:10:45.620 Here's the good news.
00:10:46.300 When you think about this, capitalism always works.
00:10:48.480 The Panama Canal makes Panama roughly $2 billion per year in profits.
00:10:52.980 If they do this expansion of the $5.25 billion, they're going to make another billion dollars.
00:10:57.420 Now, it's going to take five years for them to build this.
00:10:59.360 So Panama may say, well, we don't want to use the money right now to put $5.25 billion.
00:11:03.260 Another country may say, you don't want to do it?
00:11:05.180 No problem.
00:11:05.700 I'll give you the money, but we got to own a piece of it as well, moving forward with the profits.
00:11:09.400 Then Panama is going to say, no, no, no, no, no.
00:11:11.080 Then the world's going to say, well, then hurry up and do it because you kind of need us.
00:11:14.600 We're the customer.
00:11:15.640 Panama may say, well, then what are you going to do about it if I don't do it?
00:11:17.920 It's going to cost you more anyway.
00:11:19.200 So it's going to be a power play on companies can end up paying for it.
00:11:21.940 It's kind of like relationships when a vendor and a company, the product producer and the
00:11:25.760 marketer, they both need each other because the product's working very well.
00:11:28.680 They have to figure out a way to make it work.
00:11:30.260 But regardless, they got to move fast.
00:11:32.380 The good news is just like the Panama Canal Authority is undertaking a $5.25 billion project
00:11:36.340 to add a third set of locks to the canal.
00:11:38.740 Suez Canal Authority is also taking $8.5 billion development project to widen and deepen the canal.
00:11:43.700 This will also increase capacity and reduce shipping costs.
00:11:46.420 On top of that, both the Panama Canal and the Suez Canal Authority are investing in new
00:11:50.420 technologies to improve efficiency and safety.
00:11:52.680 For example, the Panama Canal Authority is implementing an automated lock system and the
00:11:56.660 Suez Canal Authority is installing new navigation aids.
00:11:59.600 Both canal authorities are also working to reduce the environmental impact of their operations.
00:12:03.880 For example, Panama Canal Authority is investing in water conservation and flood control measures
00:12:08.480 and the Suez Canal Authority is working to reduce pollution.
00:12:10.960 Now, the best part about this is if Panama Canal doesn't have another competition,
00:12:15.140 they can do whatever they want to do.
00:12:16.440 The best part when there's another competition, they have to really accelerate and get going.
00:12:20.400 And there's possibly another route through where?
00:12:23.700 Nicaragua.
00:12:24.200 The Nicaragua Canal is a proposed canal that would connect the Pacific Ocean to the Atlantic
00:12:28.540 through Nicaragua.
00:12:29.600 The canal is estimated to cost $50 billion to build and it would take 10 years to complete.
00:12:34.080 So a lot of these issues that's being dealt right now, they have to figure out a way to address it.
00:12:38.720 But if we got another option, it's going to make that better for you and I.
00:12:41.580 So next time you're in your car or you're using something that we talked about out of these
00:12:44.820 products, just make sure for a second, drop a prayer for the people in Panama who are doing
00:12:48.260 what they do for us to be able to have the goods that we have because it's not easy to do
00:12:52.460 what they're doing.
00:12:53.300 They're very important.
00:12:54.040 Anyways, if you got value out of this video, give it a thumbs up, subscribe to the channel.
00:12:57.620 And number two, if you didn't watch the video we did about hospitals and the healthcare
00:13:01.980 system, why it's so expensive, why they almost have a monopoly.
00:13:05.000 If you've not seen that yet, click here to watch it.
00:13:07.460 The numbers are staggering.
00:13:09.220 Take care, everybody.
00:13:10.020 Bye-bye, bye-bye.