Drought Hampers Panama Canal Operations

The Panama Canal is one of the busiest shipping arteries in the world, with around $270 billion in cargo passing through the locks annually. Using the Panama Canal saves substantial time and distance for voyages between the Pacific and Atlantic oceans, eliminating the need for sailing around South America. After several expansion projects, the canal has three lanes of locks, with the newest and largest locks, completed in 2016, allowing for the passage of Neopanamax vessels with dimensions up to 366 m (1200 ft) long, 51.25 m (168.1 ft) wide, and max draft of 15.2 m (50 ft). The locks use fresh water supplied by Gatun Lake, with gravity moving water from the lake into the locks, no pumps needed. Each passage through the neopanamax locks uses roughly 189,000,000 liters (50 million gallons) of water, with water-saving basins that recycle up to 60% of water used. The older panamax locks are smaller and use about half as much water, but they are unable to recycle what they use. To learn more about canal lock systems, check out our article here.

Climatologically, May through January is the wet season in Panama, with rains feeding streams and rivers that flow into Gatun Lake. Rainfall in Latin and South America is heavily influenced by the El Ni?o/Southern Oscillation (ENSO). With the onset of El Ni?o this past spring, lack of rainfall in Panama led to worsening drought by April, with some parts of the country receiving 50-70% of average rainfall in the wet season. Coupled with multiple heat waves increasing evaporation, the water levels of Gatun Lake are about 1.8 m (6 ft) below the five-year average.

While international trade drives increasing demand for the Panama Canal, the current drought has caused the Panama Canal Authority (ACP) to reduce the number of passages per day through the canal from 34-36 per day down to 32 per day in an effort to save water. The ACP has also limited cargo weight (and therefore draft) for vessels to reduce the amount of water needed to lift the vessel through the locks and to ensure the safe passage through Gatun Lake. The latest ENSO outlook shows that El Ni?o conditions should continue through at least spring 2024, suggesting long-term relief from drought is unlikely in the near-future. With this in mind, the ACP expects that restrictions will continue for at least the next 10 months.

The weight restrictions have exacerbated delays as vessels move to unload cargo before transiting the canal. In August, wait times increased from 5-6 days to up to 21 days. There is a reservation system, but pre-booked passages make up only about 38% of vessels using the canal (and with the drought conditions, ACP is limiting the number of pre-booked passages as well). The remaining 62% of vessels anchor and wait for an opening in the queue. On average, a total of 90 ships wait to use the canal, but in August, the number of vessels ballooned to 160.

The delays and costs leave shipping companies with a difficult choice. They can unload cargo, which then has to be picked up by another vessel later, or moved by train across Panama to the other side of the canal. Alternatively, vessels can divert to go around South America, potentially adding 2-3 weeks to a voyage. Some companies are opting to change their port rotation and stay in the same ocean basin. Larger companies have paid to skip the queue, to the tune of $2.4 million on top of the standard transit fee of $400,000. All of this makes moving products more expensive and could cause shortages in some areas, which will ultimately lead to additional costs being passed on to the consumer.