Drought collapses Panama Canal, disrupting global trade

Drought collapses Panama Canal, disrupting global trade

For more than a century, the Panama Canal has provided a convenient way for ships to move between the Pacific and Atlantic oceans, helping to accelerate international trade.

But drought has left there no longer enough water in the canal, which is used to raise and lower ships, forcing authorities to cut the number of ships they allow. This has created costly headaches for shipping companies and raised difficult questions about water use in Panama. It is estimated that the passage of one ship uses as much water as half a million Panamanians use in a day.

“This is the worst we’ve seen in terms of disruption,” said Øystein Kaleklev, chief executive of Avance Gas, a company that transports propane from the United States to Asia.

In Panama, water shortages have hampered canal operations in recent years, and some shipping experts say ships may soon have to avoid the canal altogether if the problem gets worse. Shorter routes could deprive Panama’s government of millions of dollars in annual revenue, increase the cost of shipping and increase greenhouse gas emissions when ships travel longer routes.

Although Panama has an equatorial climate, making it one of the rainiest countries, rainfall there this year has been 30 percent below average, causing water levels in the lakes that feed the canal and its powerful locks to drop. Is. The immediate cause is the El Niño climate phenomenon, which initially causes hot and dry weather in Panama, but scientists believe climate change may cause the dry season to become longer and temperatures to rise in the region.

Before the water problem, about 38 ships a day passed through the canal, which was built by the United States and remained under its control until 2000. The canal authority cut the average to 32 ships in July, and announced a new limit this week that is expected to bring the passage to fewer than 30 a day. If the water level remains low, further cuts may occur. The canal authority is also limiting how far a ship’s hull can go under water, known as its draft, which significantly reduces the weight it can carry.

Container ships, which transport finished consumer goods, generally reserve routes in advance, and do not suffer long delays. But ships carrying bulk commodities generally do not book routes.

This presents bulk shipping companies with an expensive calculation: they can afford to wait several days, pay a large fee to cross the line or avoid the canal altogether by taking the longer route.

Mr. Kaleklev, a shipping executive, said his company decided in August to pay $400,000 in a special auction to move a ship to the front of the queue, nearly doubling the total cost of using the canal. Other companies have paid more than $2 million, a cost they sometimes have to bear to ensure ships don’t miss their next assignment. A portion of these additional costs will be passed on to consumers, who are already impacted by inflation.

However, the pain is limited because the US economy is not running very hot and demand for imported goods is relatively low.

“If this was just a year ago, when we still had record high freight rates and consumers were still spending a lot on containerized goods from the Far East, you’d think now,” said Peter Sand, chief analyst at Zeneta. There will be more drama than.” , a shipping market analytics company.

But traffic through the canal is likely to remain at a low level in the coming months. Shortening the route helps save water, as large amounts of water are consumed each time a ship passes through the locks during the 40-mile trip to Panama.

The drought also presents difficult choices for Panama’s leaders, who must balance the canal’s water needs with the needs of residents, more than half of whom depend on the same sources of water that feed the canal.

canal board recent offerCreating a new reservoir in the Indio River to increase water supply and traffic through the canal, which Generates more than 6 percent of Panama’s GDP, Under the plan, the new water supply could allow 12 to 15 additional routes per day.

“In optimal conditions, the canal can handle 38 transits per day, so 12 to 15 is too many,” said Rodrigo Noriega, a lawyer and columnist for Panama’s La Prensa newspaper.

Construction of the reservoir is expected to cost about $900 million, and the canal authority could begin accepting bids from contractors in the middle of next year, with construction beginning in early 2025. But that deadline may be significantly delayed; Construction of the larger locks was completed in 2016, two years late, and the project was marred by cost disputes.

The new reservoir would also involve the acquisition of land protected by a 2006 law, and would displace at least some of its inhabitants. Mr. Noriega said he hoped Panama’s legislature would pass a law that would lift restrictions on land acquisitions. But he and others note that new water sources could be created in other places as well.

Without a new water source, the canal could lose a significant amount of business. Of course, other sea routes are longer and more expensive, but they are less likely to have unexpected delays. One option is to transport goods between Asia and the United States via the Suez Canal to the East Coast and Gulf Coast. Another is to ship goods from Asia to West Coast ports – and then deliver them overland by train or truck.

“Theoretically, something that offers a cheaper, shorter route should always be in favor, but it’s the uncertainty that can be the killer,” said Chris Rogers, head of supply chain research at S&P Global Market Intelligence.

Richard Morales, a political economist who is running as an independent candidate for vice president next year, said the long-term blockage at the canal would spur interest in building land routes in Mexico, Colombia and other countries along the coasts of both oceans. May increase.

Efforts to secure new water supplies could be a race against climate change.

Because interest in building a canal dates back to the 19th century, rainfall records in Panama go back about 140 years. This gives scientists more confidence in concluding that the climate change is a permanent change and not just random, said Steven Patton, director of the Smithsonian Tropical Research Institute’s physical monitoring program on an island in Gatun Lake. This canal supplies most of its water.

He said that although scientists were uncertain about the impact of climate change on El Niño, the two driest El Niño periods in the past 140 years occurred in the past quarter-century, and the current one could be the third.

“It doesn’t say it’s climate change,” Mr. Paton said, “but it says it’s completely consistent with almost all climate change models.”

sol lauria Contributed reporting from Panama.

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