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A tanker transits through the Panamax locks of the Panama Canal. Photo courtesy Panama Canal Authority

A tanker transits through the Panamax locks of the Panama Canal. Photo courtesy Panama Canal Authority

Panama Canal Averts Shipping Crisis With Its Water Plan

Bloomberg
Total Views: 2314
June 14, 2024

(Bloomberg) —

The Panama Canal has managed to ward off a shipping crisis that threatened to upend $270 billion a year in global trade. It did so with careful water management — and a little bit of luck. 

As parched conditions gripped the Central American country last year, the Panama Canal Authority slashed the number of vessels allowed to cross each day to 22, about 60% of normal. Shippers paid millions of dollars to jump the growing queue and avoid wait times that stretched more than two weeks. 

But recently, with water levels rising, the authority has started to raise the limit. It said on Tuesday that 34 vessels will be permitted daily beginning in late July, close to the pre-drought cap of 38. Shippers now wait less than two days to transit the canal. If rain patterns hold, the waterway could return to full capacity next year, the canal authority said in a written response to questions.

“Current forecasts indicate that the constant rains will continue for the next few months,” the canal authority said. “If this continues to be the case, the canal plans to gradually lift restrictions, allowing conditions to completely normalize in 2025.”

The canal’s turnaround is due, in part, to successful water-management measures. But it’s also the result of a wetter-than-expected dry season — which extends from December to April in Panama — and the end of El Niño, the weather phenomenon that left Panama with one of its least rainy years on record.

The dramatic shift underscores how waterways around the world are increasingly at the mercy of extreme weather. Countries and companies must adapt or find ways to mitigate the effects of climate change as it alters trade flows, with melting sea ice creating new shipping routes in the Arctic and drought causing chokepoints in other parts of the globe. Meanwhile, security concerns amid the Israel-Hamas war have disrupted traffic in the Red Sea.

For the Panama Canal, water-saving measures such as cross-filling, a technique that re-uses water in the canal’s locks, and reducing daily transits helped offset the drought’s impact, the canal authority said. The goal now is for Lake Gatún and another reservoir connected to the canal to rise enough to keep trade flows at capacity through the next dry season.

“El Niño has totally vanished and now La Niña has entered into action, which brings more rain than normal,” said Jorge Luis Quijano, a consultant and former head of canal authority. “It still remains to see if we can maintain the 38 transits per day during our next normal dry season.”

Under typical circumstances, the Panama Canal handles about 3% of global maritime trade volumes and 46% of containers moving from Northeast Asia to the US East Coast. Any increase is a relief to shippers, some of whom were forced to take the long route around South Africa or through Chile’s Strait of Magellan to get their goods to market. 

Chilean fruit farmers are among those cheering the recovery, said Ignacio Caballero, director of marketing for the produce trade association Frutas de Chile. Many of them had to reconfigure US-bound shipments last year due to the Panama Canal restrictions on booking slots.

“The more slots that are available, the much better it is,” Caballero said.

Exporters of liquefied natural gas, a key heating and power-plant fuel, would also potentially benefit from the easing of canal constraints. Most LNG tankers have been sailing around the Cape of Good Hope, however, with relatively low gas prices in Europe and Asia making it unattractive for tankers to pay more to cut through the canal. 

Julia Zhao, principal data scientist at analytics provider Dun & Bradstreet, said Panama Canal vessel traffic could return to normal pre-drought levels in just three weeks if precipitation is similar to 2022 levels.

Just how fast Lake Gatún fills up depends both on rainfall and how many ships are going through the canal, said Steve Paton, the director of the Smithsonian Tropical Research Institute’s physical monitoring program. The canal is forced to flush vast amounts of water out of a sophisticated lock system each time a boat passes through, making the channel itself a water hog.

“Every forecast I’ve seen indicates more than average rainfall, which is exactly what we need,” said Paton.  

The canal authority is studying longer-term projects to increase its water supply, such as building additional reservoirs. But there is “no simple answer, nor single project that can immediately resolve the water crisis,” it said by email.

The canal presented proposals to the incoming government led by President-elect Jose Raul Mulino, who will be inaugurated on July 1, to potentially expand the canal’s property limits or eliminate restrictions that prevent it from building new reservoirs. 

“The President-elect, upon receiving this information, said that one of his priorities was to solve the water issue,” the canal authority said.  

© 2024 Bloomberg L.P.

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