Panama Canal’s drought puts global trade at risk

29 September 20233 min reading

Panama, one of the world’s wettest countries, is grappling with an alarming drought that has cast a shadow over global trade. The shortage of rainfall has led to critically low water levels in the iconic Panama Canal, causing significant disruptions to international shipping routes.

As Panama approaches the end of its rainy season, the country is facing one of the driest years on record, with year-to-date rainfall levels not seen since 1950. This drought has raised concerns about the availability of freshwater in the canal’s catchment area, potentially affecting its operations for the foreseeable future.

The Panama Canal Authority has announced that water levels have not recovered sufficiently to resume normal vessel transits. As a result, the daily transit limits and vessel draft restrictions, which were put in place earlier this year to conserve water, are expected to remain in effect until late September next year, unless the region experiences substantial rainfall. These restrictions, enacted due to the prolonged drought, have led to a backlog of vessels waiting to traverse the canal. Typical waiting times have ballooned from three to five days to an astonishing 19 days in August, causing delays in global trade routes.

The Panama Canal, an 82-kilometer-long artificial waterway, connects the Atlantic Ocean with the Pacific Ocean, serving as a vital trade route that separates North and South America. To facilitate the passage of vessels, the canal employs an intricate system of water locks to raise and lower ships, consuming an average of 193 million liters of freshwater per vessel. Gatun Lake, an artificial freshwater reservoir created in 1913, plays a crucial role in the canal’s operation. It sits 26 meters above sea level and supplies both the canal and approximately half of Panama’s 4.2 million residents with drinking water. However, the current water level in Gatun Lake is only 24.2 meters, significantly lower than the September average of 26.6 meters.

The Panama Canal is a lifeline for global maritime trade, handling 14,239 transits in 2022, an increase of 6.7% from the previous year. The total cargo volume reached 296.5 million tonnes, up 1.5% from 2021, with toll collections totaling US$3.028 billion. Goods valued at approximately US$270 billion, equivalent to 5% of global trade, passed through the canal system last year. The canal is crucial for the efficient transportation of grain and other agricultural commodities from U.S. Gulf of Mexico ports to Asia, with 40% of U.S. container traffic relying on this route. While southbound grain volumes reached 36.18 million tonnes in 2022, the northbound flow was at 2.2 million tonnes. Notably, soybeans, corn, and sorghum were among the major commodities transported through the canal, with significant implications for global trade.

The congestion caused by the drought-related restrictions became so severe in August that some shippers paid millions of dollars to expedite their cargo. As the situation unfolds, the global supply chain network is keeping a watchful eye on Panama. Any further bottlenecks or disruptions in maritime trade could have far-reaching consequences for the interconnected global trade system, which has been striving to maintain stability amid pandemic-induced disruptions. 

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