Drought undermines the Panama Canal and disrupts global trade

For more than a century, the Panama Canal has provided ships with an easy way to move between the Pacific and Atlantic Oceans, speeding up international trade.

But a drought has left the canal without enough water, which is used to raise and lower ships, forcing officials to reduce the number of ships they allow through. This has caused expensive headaches for shipping companies and raised difficult questions about water use in Panama. It is estimated that the passage of one ship uses as much water as half a million Panamanians use in one day.

“This is the worst we’ve ever seen in terms of disruption,” said Oystein Kalleklev, the CEO of Avance Gas, which transports propane from the United States to Asia.

In Panama, a lack of water has hampered canal operations in recent years, and some shipping experts say ships may soon have to avoid the canal altogether if the problem worsens. Fewer passages could deprive the Panamanian government of tens of millions of dollars in annual revenue, raise the cost of shipping and increase greenhouse gas emissions as ships take longer routes.

Although Panama has an equatorial climate, making it one of the wettest countries, it is receiving 30 percent less rainfall than average this year, causing water levels to drop in the lakes that feed the canal and its mighty locks. The direct cause is the climate phenomenon El Niño, which initially causes hotter and drier weather in Panama, but scientists think climate change could extend dry spells and increase temperatures in the region.

Before the water problems, as many as 38 ships a day sailed through the canal, which was built by the United States and remained under their control until 2000. The canal authority cut the average to 32 vessels in July and later announced the number would drop to 31 on November 1. Further reductions could be possible if water levels remain low. The canal authority also limits how far the ship’s hull can go underwater, known as its draft, which significantly reduces the weight it can carry.

Container ships, which carry finished consumer goods, usually reserve passage well in advance and have not suffered major delays. But ships carrying bulk goods generally do not book passage.

This leaves bulk shipping companies with an expensive bill: They can risk waiting for days, paying a high fee to jump the border or avoiding the canal entirely by taking a longer route.

Mr. Kalleklev, the shipping director, said his company had decided in August to pay $400,000 at a special auction to move a ship forward in the queue, bringing the total cost of using the canal to about doubled. Other companies have paid more than $2 million, a cost they will sometimes bear to ensure ships don’t miss their next assignment. Some of these additional costs will be passed on to consumers, who are already ravaged by inflation.

However, the pain has been limited because the US economy is not running very hot and demand for imported goods is relatively subdued.

“If this was a year ago, when we still had record high freight rates and consumers were still spending a lot on containerized goods from the Far East, you would see more drama than you do now,” said Peter Sand, chief analyst at Xeneta. , a shipping market analytics company.

But traffic through the canal is likely to remain at lower levels in the coming months. Reducing the size of the passages helps save water, because enormous amounts of water are used every time a ship passes through the locks as it travels the 40 miles through Panama.

The drought also poses difficult choices for Panama’s leaders, who must balance the canal’s water needs with those of residents, more than half of whom rely on the same water sources that feed the canal.

The canal sign recently proposedd the construction of a new reservoir in the Indio River to strengthen the water supply and increase traffic through the canal generates more than 6 percent of Panama’s gross domestic product. According to the plan, the new water supply would allow twelve to fifteen additional passages every day.

“In optimal conditions, the canal can handle 38 transits a day, so 12 to 15 is a lot,” said Rodrigo Noriega, a lawyer and columnist for the Panamanian newspaper La Prensa.

Construction of the reservoir is expected to cost nearly $900 million, and the canal authority could begin accepting bids from contractors by the middle of next year, with construction starting in early 2025. But that timeline could very well be delayed; construction of larger locks was completed two years late, in 2016, and that project was marred by cost disputes.

The new reservoir would also involve acquiring land protected by a 2006 law and displacing at least some of its residents. Mr. Noriega said he expected Panama’s legislature to pass a law that would lift the ban on land acquisitions. But he and others note that new water sources could be built in other places, too.

Without a new water source, the canal could lose significant amounts of revenue. Other ocean routes are obviously longer and more expensive, but there is less chance of unpredictable delays. An alternative is to transport goods between Asia and the United States via the Suez Canal to the East Coast and the Gulf Coast. Another is to ship goods from Asia to west coast ports – and then transport them overland by train or truck.

“In theory, something that offers a cheaper, shorter route should always be preferable, but it’s the uncertainty that can be deadly,” said Chris Rogers, head of supply chain research at S&P Global Market Intelligence.

Long-term disruptions to the canal could spark interest in building land routes in Mexico, Colombia and other countries with coastlines on both oceans, said Richard Morales, a political economist who is running for vice president next year.

The effort to secure new water supplies could be a race against climate change.

Because interest in canal construction dates back to the 19th century, Panama has rainfall records going back some 140 years. That gives scientists more confidence in concluding that a weather change is permanent and not merely random, said Steven Paton, director of the Smithsonian Tropical Research Institute’s Physical Monitoring Program on an island in Lake Gatun, which is responsible for much of the climate change. matters. canal and supplies most of the water.

He said that while scientists were unsure about the impact of climate change on El Niño, two of the driest El Niño periods of the past 140 years had occurred in the past quarter century, and the current one could be the third.

“It doesn’t say this is climate change,” Mr. Paton said, “but it does say this is completely consistent with almost all climate change models.”

SolLauria contributed reporting from Panama.