The Panama Canal has imposed unprecedented restrictions on transits, driven by water shortages linked to the El Niño phenomenon in 2023. The canal’s reservoir system is significantly impacted, causing ripple effects across global shipping operations.
Following Panama’s rainy season, Lake Gatun, the crucial reservoir supplying water for the canal’s locks and the nation’s primary source of potable water, is currently 6 feet below anticipated levels.
In response, the Port Authority has slashed daily operations by 33%, allowing only 24 containers to pass through the lock system.
This bottleneck is expected to worsen during the upcoming dry season.
Dr. Ricaurte Vásquez Morales, Panama Canal Authority administrator, acknowledged challenges affecting international trade, including increased interest rates impacting merchandise value and inventory carrying costs.
“Aside from these challenges, there have been several other issues that are affecting international trade,” Vásquez Morales said. “One of which, for example, is the increase in interest rates. Interest rates have affected not only the value of merchandise but the carrying costs of inventories. So it is more pressing nowadays for cargoes to arrive on time in order to reduce excessive storage, excessive inventories and the incremental cost associated with it due to higher prices.”
Seventy vessels are currently backlogged, a decrease from 160 six months ago. On average, each ship waits 12 days before crossing the canal. The situation compels cargo ships to seek alternative routes, such as the Suez Canal, incurring additional travel time, shipping costs, and a heightened risk of Houthi rebel attacks.
Dr. Vásquez Morales outlined plans to invest $2 billion to address future water shortages, including damming a river to supplement Lake Gatun’s water levels. This initiative could potentially increase the canal’s daily capacity, accommodating an additional 15 ships.
“In a world today with high inflation and higher costs, any disruption at Suez will further complicate the situation and global trade and further create worse expectations on the use of the Panama Canal and the limitations that we impose on international trade due to lack of water,” Vásquez Morales said.