A lengthy and severe drought hitting the Panama Canal has caused water levels to drop to historic lows in July. To avoid ships stranding, the Panama Canal Authority (ACP) has imposed a series of shipping restrictions, which has instead triggered a line of ships waiting to transit the waterway.
Starting in late May, the maximum draft for ships passing through the canal is limited to 13.4 meters, compared to the canal's normal operating draft of 15.24 meters, so large ships have had to reduce the amount of cargo. Some container ships even have to cut loads by 40 percent. Also, from the end of July, the ACP further limited daily crossings to 32, down from an average of 36.
The restrictions led to bottlenecks for ships waiting for their turn to cross. On August 11, 264 ships waiting to cross the canal jammed up in the canal, a 16 percent increase compared with the same day last year, according to shipment tracker MarineTraffic. The shipping agency Norton Lilly said that the average waiting times for larger tankers carrying liquefied natural gas north through the canal increased from eight days as of July 10 to 18 days as of August 10.
The shipping companies are not only facing increased time and economic costs, but also the risk of time-sensitive product spoilage.
According to data provider Xeneta, the average cost of sending a 40-foot container from China to the U.S. Gulf Coast through the canal at short notice has risen 36 percent to $2,400 since the end of June. Data provider MDS Transmodal said that between the South American west coast to Europe, food and drink made up 77 percent of container shipments last year.
More than 3 percent of world trade by volume passes through the canal and up to 29 percent of container trade crossing the Pacific travels through the canal, according to MDS Transmodal.
A cargo ship sails toward the Pacific Ocean after its transit though the Panama Canal, as seen from Panama City on August 3, 2023. /CFP
As the daily capacity has been reduced since the end of July, the ships which are already waiting in line but lacking reservations have to wait for the vessels with reservations to proceed across the canal.
The ACP was limiting pre-booked slots for crossings and permitted more ships without a booking to travel through the canal to ease congestion. However, the demand is so high that the backlog still remains. As of 1 a.m. on Wednesday, 77 vessels were waiting in port and 51 were expected to arrive.
Either vessels will have to wait longer to transit the canal, or shipping companies will make a decision to take alternative routes, but this will also increase the time and fuel costs to the journey.
Adil Ashiq, head of North America for MarineTraffic, said in an interview that shippers using multiple vessels to move their freight adds to freight costs, and longer lead times to secure bookings. Ultimately, he said, these costs may end up being passed down to businesses and consumers.
A ship navigates through the Panama Canal in Panama City on April 24, 2023. /CFP
The Panama Canal, one of the world's most important trade routes, connects the Atlantic Ocean with the Pacific Ocean. It serves as a maritime shortcut that saves time and costs in transporting all kinds of goods.
In recent months, much of Central America, including Panama, has experienced intense drought. According to Institute of Meteorology and Hydrology of Panama, the amount of rain in Panama will remain low throughout the year and the drought is expected to last until 2024.
In May, Panama declared an environmental state of emergency as the drought is affecting the canal's water supply.
The restrictions are expected to maintain throughout the remainder of the current year and part of 2024, unless significant changes occur in weather conditions from current projections.
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