The images of dozens of ships loaded with containers lining up to cross the Panama Canal, forming an unprecedented traffic jam in the crucial interoceanic shipping lane made two things clear this year: the water crisis is an urgent issue on the world agenda and the impact of climate phenomena will end up costing more and more.
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The road that connects 1,920 ports in the world experienced the second driest year in its history in 2023. The combination of climate change and the El Niño phenomenon was the backdrop for a water shortage that continues to worry canal authorities and their customers. Since it operates with fresh water, the canal suffers from the low level of the lakes from which it is supplied. Everyone is counting the days until it rains again.
In recent months, severe drought forced the Panama Canal Authority to take drastic measures. It reduced the usual traffic of ships: if before they passed between 36 and 38 a day, now 22 pass (see infographic). The draft of the vessels (cargo tonnage) also decreased and variations were made in the rate for the use of water.
The restriction also caused a notable increase in the number of ships queuing to cross this route that connects the Pacific Ocean with the Atlantic. The peak was reached in August, with 161 ships stuck.
A key route for trade
IMPORTANCE
- 6% of international maritime trade passes through the Panama Canal.
- It contributes an annual average of 6% of Panama’s gross domestic product and at least 20% of the Government’s income.
- Since it passed into Panamanian hands, the canal has delivered more than US$25.7 billion to the country’s coffers.
- 2023 is the second driest year in recorded history in the canal’s watershed.
Faced with the crisis, some shipping companies have chosen to explore alternative routes, although they are more extensive and expensive. The restrictions mainly affect taller ships and oil tankers.
Future impact
According to a report from the Panamanian Government released at the beginning of December, the canal registered in the last fiscal year (October 1, 2022-September 30, 2023) a decrease in ship and cargo transit in relation to the previous year. but more money. In fact, Panama received the largest income in its history from the road.
And the economic consequences of the restrictions in the canal will only be seen in the next fiscal period, and the drop in income as a result of the drought is already estimated at about 200 million dollars.
Reductions in 2023
- 510 million tons of cargo passed through the Panamanian route this year, eight million less than in the previous year.
- The number of transits also decreased from 13,003 vessels to 12,638.
- 38 vessels transit the road in optimal conditions, but the number has gradually reduced in recent months and will continue to do so: 24 in November, 22 in December, 20 in January and 18 in February.
Katiuska Hernández, a journalist for the local newspaper “La Prensa”, points out that the canal has not lost money because for years the shipping companies have consolidated their loads, which means that a single ship carries more tonnage.
“The canal charges per ship and per tonnage, so this year it has given more dividends to the State despite the critical time. Of course, there are foreign shipping companies that have decided to go through the Suez Canal, others that are through Cape Horn and others that do want to continue through the canal, but have to pay more. The reduction in income will be noticeable in fiscal year 2024,” he points out to El Comercio.
EFFECT IN PERU
The Foreign Trade Research and Development Institute of the Lima Chamber of Commerce warned in August that the drought in the Panama Canal could affect the growth of Peruvian exports to Europe and Africa for this year.
The main economic sectors that could be affected are non-traditional agriculture and the mining, oil and natural gas sectors.
Rafael del Campo, director of the Association of Exporters (ÁDEX), trusts that the situation will normalize. “The boats keep crossing; If they don’t do it through the canal, they cross on another side. The effect could be in cost but not in the inability to reach a destination,” he tells this newspaper. He also highlights that the costs of measures are transferred to the owners of the cargo. “Shipping companies never lose, the one who loses is always the final consumer,” he adds.
More restrictions
These days, the water level is still low, but it has risen a little, which allows the number of daily ships to increase somewhat. Beyond that, the restrictions and measures will continue.
Although it belongs to the government, the canal works autonomously and has announced that the reduction in daily transfers will continue at least until the first quarter of 2024. In addition, it has proposed building a third reservoir to have more water inflow.
“It has been a very challenging year and the summer is not going to get better. For the first time we have had to reduce the number of transits in order to maintain a competitive depth. The draft reduction will continue for a few more months. We have the El Niño phenomenon, the dry season, but we calculate that the rains should return in May,” the deputy administrator of the Panama Canal, Ilya Espino, hoped this week.
TURBULENT WATERS IN THE RED SEA
Tension due to violence on the other major global channel
The Red Sea, which reaches the Suez Canal (Egypt), is the scene of a new international crisis. For four weeks, Houthi militiamen from Yemen backed by Iran have been attacking ships passing through their waters with missiles and drones, in response to the war between Israel and the Islamist group Hamas.
The violence is forcing shipping companies, which use the canal to go from Asia to Europe and vice versa, to divert their routes, forcing higher costs.
The Suez Canal is a transit point for about 10% of world trade. Many shipping companies now use the Cape of Good Hope route in southern Africa to reach Europe.
A US-led coalition says it is ready to take action and provide security for ships.
