Panama Canal avoids shipping crisis with water plan… and luck

The Panama Canal has managed to avoid a crisis of the Marine transport that threatened to jeopardize US$270 billion a year in global trade. She got it thanks to careful water management…and a little luck.

Last year, when the Central American country was hit by a severe drought, the Panama Canal Authority reduced the number of ships authorized to cross each day to 22, approximately 60% of normal. Shipping companies paid millions of dollars to skip the growing queue and avoid waits of more than two weeks.

But recently, with water levels rising, the authority has begun raising the limit. On Tuesday it announced that 34 ships a day will be allowed starting at the end of July, close to the pre-drought high of 38.

Ships now wait less than two days to transit the canal. If the rainy season continues, the waterway could return to full capacity next year, the canal authority said in a written response to questions.

“Current forecasts indicate that steady rain will continue for the next few months“said the channel authority. “If this continues, the channel plans to gradually lift restrictions, allowing conditions to fully normalize in 2025.″.

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

The drastic change underlines how waterways around the world are increasingly at the mercy of extreme weather conditions. Countries and companies must adapt or find ways to mitigate the effects of climate change as it disrupts trade flows: melting sea ice creates new shipping routes in the Arctic and drought causes traffic jams in other parts of the world. Meanwhile, security problems arising from the war between Israel and Hamas have disrupted traffic on the Red Sea.

In the case of the Panama Canal, water-saving measures such as cross-filling, a technique that reuses water in the canal’s locks, and reducing daily transits helped offset the impact of the drought, according to the channel authority. The goal now is for Gatun Lake and another reservoir connected to the canal to grow enough to keep trade flows at capacity during the next dry season.

“El Niño has completely disappeared and now La Niña has come into action, bringing more rain than normal”explains Jorge Luis Quijano, consultant and former head of the canal authority. “It remains to be seen whether we can maintain the 38 transits per day during our next normal dry season.”

Under normal circumstances, the Panama Canal handles about 3% of global maritime trade volumes and 46% of containers transiting from Northeast Asia to the East Coast of the United States. Any increase is a relief for shipping companies, some of which were forced to take the long route around South Africa or through the Strait of Magellan in Chile to get their goods to market.

Chilean fruit growers are among those who are happy about the recovery, according to Ignacio Caballero, marketing director of the Frutas de Chile trade association. Many of them had to modify their shipments to the United States last year due to the Panama Canal restrictions when reserving time slots.

“The more time slots available, the better.”says Caballero.

Exporters of liquefied natural gas, a key fuel for heating and power plants, could also benefit from the easing of canal restrictions. However, most LNG carriers are sailing around the Cape of Good Hope, as relatively low gas prices in Europe and Asia make it unattractive for tankers to pay more to pass through the canal.

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

How quickly Gatun Lake fills depends on both rainfall and the number of ships passing through the canal, says Steve Paton, director of the physical monitoring program at the Smithsonian Tropical Research Institute.

The canal is forced to expel large amounts of water from a sophisticated system of locks every time a ship passes, making the canal itself a water guzzler.

“Every forecast I’ve seen calls for above average rainfall, which is exactly what we need” says Paton.

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

The canal submitted proposals to the incoming government led by President-elect José Raúl Mulino, who will take office on July 1, to potentially expand the canal’s ownership limits or remove 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.“said the channel authority.