Water shortage leads to year-round shipping restrictions in Panama Canal

Due to water scarcity, the Panama Canal will maintain shipping restrictions for a year, causing congestion in the major trade route.

The Canal, which facilitates 6% of global maritime trade and stretches 80 kilometers, connects the Pacific Ocean and the Caribbean Sea.

Major users include the US, China, and Japan. The reduced rainfall, influenced by climate change and El Niño, led the Canal to limit transits since July 30 to conserve water.

Previously, about 40 ships crossed daily, but the number has been reduced to 32.

The Canal authority has also decreased the vessel’s draft limit to 44 feet, down by two feet from before.

This limitation has escalated the queue of ships waiting to cross. Without restrictions, up to 90 ships waited; now, this number has surged, at times reaching 160.

Ships transiting the Canal usually reserve one of the daily slots. If not reserved, ships might bid in an auction for a slot or wait indefinitely.

90 SHIPS

Most waiting ships don’t have reservations.

While the Canal can handle a queue of about 90 ships, numbers around 130 or 140 cause delays, acknowledged Ilya Espino, the Canal’s Deputy Administrator.

If rain levels rise by year-end, restrictions might be lifted earlier than August 2024. Recent claims stated that the Canal was closed due to drought.

However, Panamanian President, Laurentino Cortizo clarified that while restrictions are in place, the Canal isn’t shut.

The Canal uses rainwater to operate locks that lift ships over the continental divide.

Each transit requires around 200 million liters of fresh water, mainly from Gatún and Alajuela lakes.

This water basin also supplies half the nation’s potable water but has been impacted by reduced rain.

TOLL REVENUE

To combat this, the Canal Authority is exploring new water sources.

The imposed measures might affect global trade. A reduced draft means ships carry less, decreasing Panama’s toll revenue.

Projections for next year suggest tonnage through the Canal might be “less than 500 million tons,” a decline from 518 million the previous year.

Consequently, revenue is anticipated to drop by US$200 million. Last year, toll earnings surpassed US$3 billion.

Espino commented that the global trade impact might not be worse than the effects of the COVID-19 pandemic.

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