How the Panama Canal is adapting to the worst drought in a century

He Panama Canal is going through its driest period for more than a century, and a prolonged lack of rain this could affect global supply chains with delays and higher fees to move goods.

The government agency that runs the man-made canal introduced travel restrictions in May to prevent ships from running aground, and since then some large ships have had to cut container loads by around a quarter.

Other restrictions could come into effect by the end of June, officials say. Meteorologists have warned that water levels in the Gatun Lake -located in the center of the channel- could reach record lows in July with occasional weather events The boy which will bring higher temperatures and less rain.

Canal authorities hope the second half of the year will bring some relief. Panama is one of the rainiest countries in the world, but in the first five months of the year, accumulated rainfall in the Canal Zone was 47% below the historical average, according to the Canal Authority. from Panama. The canal was opened to traffic in 1914.

He Panama Canal whose daily water consumption triples that of the city of new York It depends on the rains. More than 50 million gallons of water are lost to the sea every time a ship passes through the locks. This water is replenished from a reservoir, which in turn fills up when it rains. If it doesn’t rain enough, as it did during the droughts of the late 1990s, several ships could avoid the passage, canal officials say.

Authorities have spent years planning for more extreme weather events to preserve the canal’s role as a vital trade route and avoid supply chain bottlenecks, like the stranded ship that clogged the Suez Canal. in March 2021. The large container ship Ever Given blocked the waterway for six days, causing a backlog of over 400 ships and costing billions in trade.

Meanwhile, shipowners and charterers are adjusting their operations to meet lighter freight needs and weighing the costs of moving shipments elsewhere.

Disruptions in channel operations would hurt exporters in the southern hemisphere and importers in the north. brazilian meat, Chilean wines and bananas from Ecuador are regularly shipped through the channel, as well as Chilean copper and liquefied natural gas off the United States Gulf Coast. The Isthmus connects the oceans Atlantic and Pacific and handles about a third of the seaborne trade from Asia to America.

Any problems could also disrupt the efforts of the Panama Canal Authority to boost business. It has spent $5.4 billion on a new set of locks that can accommodate larger container ships, in a bid to be more competitive with the Suez Canal of Egypt . Routes through the Panama Canal shorten the one-way sea voyage between Asia and the US East Coast by about five days.

The canal attracts more money from larger ships passing through the new locks, which now account for about half of its business. Around 10 boats per day they pass through the new locks and about 27 smaller vessels pass through the old locks.

“The volume of rain has dropped steadily over the past 20 years,” said Ricaurte Vásquez Morales, Administrator of the Panama Canal Authority. “We are facing a climate crisis at full capacity and we need to find new sources of water to store in our lakes.”

He Panama Canal is the country’s largest foreign revenue generator, responsible for more than $3 billion in tolls last year .

In addition to reducing freight charges, shipowners are adapting to Panama Canal restrictions by moving containers onto trains to ensure safe passage through locks. In some cases, boxes are unloaded from ships on the Canal side of the Pacific Ocean are transported by rail and brought back to the ships before continuing their journey on the Atlantic Ocean .

The Panama Canal Railway has seen a 20% increase in volume in recent weeks from shippers affected by the drought, said Thomas Kenna, president of the railway.

Transporting large quantities of cargo can help improve the economics of operation along shipping lanes. Vessel operators are likely to reroute to avoid the channel if faced with the prospect of carrying fewer boxes in the summer, industry executives and analysts have said.

“If you see the channel as having limitations, it’s not good for anyone,” Kenna said. “Freight will always find the most efficient route.”

Shipowners are also responding by charging customers an average of $600 more per case on ships passing through the canal. The daily freight rate from Asia to the US East Coast was $2,400 per container in May, according to the Freightos Baltic Index, but is expected to rise in June, in part due to the canal’s drought surcharge Panama.

For now, AP Moller-Maersk and other liners such as Germany’s Hapag-Lloyd and China’s Cosco Group have no plans to hijack the ships from Panama, but executives said it could happen. occur if dry conditions persist.

“Low water levels in the Panama Canal are a clear example of the effects of climate change, which is causing a domino effect across the entire supply chain,” said a spokeswoman for Maersk, the world’s second line. in terms of capacity.

Vásquez Morales said that extreme rain or drought conditions are more frequent than in the first years of the canal’s operation. This problem poses a challenge for the Panama Canal Authority, which supplies water to some 2.5 million people, roughly half of the country’s population.

The canal contracted with the US Army Corps of Engineers, the canal’s original builder, and allocated $2 billion over the next 10 years to divert up to four rivers into the waterway, in addition to the three that are already feeding it. .

“We would have done the same thing for 25 years if the climate had remained normal, but now we have to do it in 10 years,” said Vásquez Morales.