Panama Canal Drought Could Hit U.S. Trade Hard

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panama city cargo ship

The Panama Canal is a major shipping route between the Americas and the rest of the world, helping move food, energy, and other goods between different continents. Throughout the 20th and 21st Centuries, the route has been critical for moving cargo from the U.S. and other countries in the region to Asia and Europe. However, due to climatic shifts, the Panama Canal is under threat of drying up, which could severely disrupt supply chains and may create the need for alternative trade routes to be established. 

The Panama Drought

Drought has hit the Panama Canal hard over the last year, preventing several shipments from passing through its waters to reach their destination. Extremely heavy ships pass through Panama’s waters every day, carrying food, energy goods, and vehicles. To move safely, these container ships must float on millions of gallons of freshwater. Without guarantees that a sufficient amount of water will be in the canal at the time of movement, ships will not be able to take the risk of using the route. 

As the water level decreases, ships are being asked to reduce their weight to pass through the waters. The Panama Canal Authority has limited the number of ships traveling the canal from between 36 and 38 to 32 a day now. Although the region has faced periods of drought in the past, this is more concerning as it is expected to be a long-term trend due to the effects of climate change. There is little rain forecast, meaning the drought is expected to stretch out longer, particularly as we see the return of the weather phenomenon El Niño

A Global Issue

The issue has been exacerbated by drought in other areas of the world, which has negatively affected large quantities of trade worldwide. For example, extremely high temperatures in the Midwest of the U.S. are threatening to dry up the Mississippi River, which is key for transporting American grains. The same is being seen in other parts of the world, affecting rivers such as the Rhine in Germany and the Yangtze in China. 

Jon Davis, a meteorologist at Everstream Analytics explained, “These kinds of issues, overall, are becoming more frequent.” He added, “Dryness in Panama, low levels in the Mississippi. Low levels in the Rhine. That’s of concern to anyone that has interests in global trade.”

Around 90% of goods transported globally are delivered through ocean shipping, meaning that it is critical that we address the issue of climate change to ensure that our oceans and rivers keep flowing as they should. In addition to dry rivers, there has been an increasing concern about the rising temperatures of the world’s oceans, causing severe weather events such as flooding and hurricanes, which threaten both people and supply chains. 

The Response from Freight Companies 

In January, the major shipping company Maersk began using alternative routes to the Panama Canal to ensure business stayed on track in the face of the drought. Maersk told clients that freight from Oceania would no longer pass through the Panama Canal due to low water levels and that it would instead be transported using a land bridge. Ships are being sent to the Pacific side Ports of Balboa and the Atlantic side Port of Manzanillo in Panama to transport cargo between the Americas and Oceania. Cargo is dropped off at one port before being transported by existing rail routes 80 km across the country to be delivered to the other for sea transportation. 

In addition to the threat of limited movement, the Panama Canal Authority has been charging companies additional fees for its heavy loads, making many fearful of added costs and what’s next to come at their major freight route. Maersk’s client advisory explained, “Based on current and projected water levels in Gatun Lake, the Panama Canal Authority (ACP) has needed to make reductions to the amount and weight of vessels that can pass through the canal. Whilst we continue to work closely with the ACP, moderating and aligning our operations to fit the changes, we have made changes to services to ensure that our customers are impacted as minimally as possible.” 

Around 40% of all U.S. container transport moves through the Panama Canal each year, equating to around $270 billion in cargo. The Panama Canal Authority has assured its global clients that freight will be able to pass through Panama, even if the drought continues, thanks to its multimodal transportation system. Maersk is taking advantage of this option and other companies are likely to follow in its footsteps if the drought continues for fear of major supply chain disruptions. However, drought could alter the long-term approach to shipping in the region as the effects of climate change continue to threaten its waters.

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Felicity Bradstock is a freelance writer specializing in Energy and Industry. She has a Master’s in International Development from the University of Birmingham, UK, and is now based in Mexico City.

 

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