2023-11-06 06:43:11
For 110 years, the Panama Canal and its locks have allowed ships to move quickly between the Pacific and Atlantic Oceans, facilitating international trade.
However, due to a drought, the canal is running out of water. Authorities had to reduce the number of ships allowed to pass. This creates problems and costs for shipping companies. In Panama, we are asking difficult questions about water use. The passage of a single ship uses as much water as half a million Panamanians in a day.
We have never seen such serious disruptions.
Oystein Kalleklev, CEO of Avance Gas, which transports propane from the United States to Asia
The Panama Canal, an engineering marvel opened in 1914, handles about 5% of maritime commerce. Its problems once again illustrate the fragility of certain crucial elements of the global supply chain. In 2021, a giant container ship ran aground in the Suez Canal, blocking transportation for six days. During the pandemic, enormous demand for medical products and a host of home products pushed the supply chain to breaking point.
PHOTO BY NATHALIA ANGARITA, THE NEW YORK TIMES
The Panama Canal problems once again illustrate the fragility of some crucial elements of the global supply chain.
In Panama, the lack of water has limited the operation of the canal for several years. Some shipping experts predict ships could soon move elsewhere if the problem worsens. This would deprive the Panamanian government of tens of millions in annual revenue. Longer routes would make shipping more expensive and increase greenhouse gas emissions.
Rain down 30%
Panama’s equatorial climate makes it a very humid country, but this year, precipitation is 30% below average: this has caused the level of the lakes that feed the canal and its enormous locks to drop. The immediate cause is the El Niño weather phenomenon, which causes hotter and drier weather in Panama. But scientists fear that climate change will prolong droughts in the region.
Normally, up to 38 ships per day pass through the canal, which was completed by the United States and remained under its control until 2000. In July, the canal administration reduced the average to 32 ships and just to announce new limits: we are heading towards less than 30 crossings per day, and even fewer if the water level remains low. The canal authority also limits the permitted draft, which greatly reduces the load that ships can carry.
PHOTO BY NATHALIA ANGARITA, THE NEW YORK TIMES
Ships at anchor off the coast of Panama City in the Pacific Ocean awaiting their turn to pass through the Panama Canal to the Atlantic Ocean
Container ships, loaded with finished consumer goods, book their passage well in advance and have not suffered long delays.
But ships carrying bulk cargo rarely book. So owners of bulk carriers and tankers have a dilemma: they can risk waiting for days, pay a big premium to get through before the others, or avoid the canal and take a much longer route.
In August, Avance Gas paid $400,000 in a special auction to get a ship ahead of its turn, doubling the cost of passage, Mr. Kalleklev says. Other shipowners have paid more than $2 million, a cost they sometimes shoulder to ensure a ship arrives on time for its next cargo. Part of these costs ends up being passed on to the consumer, already hit by inflation.
Looking for solutions
The drought is forcing difficult choices on Panama’s leaders, who must balance the canal’s water needs with those of residents, more than half of whom rely on the same water sources that feed the canal.
PHOTO ARIS MARTINEZ, REUTERS
The bulk carrier NSU Challenger in the Cocoli Lock of the Panama Canal near Panama City, the Pacific side entry point
The canal administration is proposing to build a new reservoir in the Indio River to increase water supply and increase canal traffic, which generates more than 6% of Panama’s gross domestic product. This would allow 12 to 15 more passages per day.
Optimal traffic is 38 passages per day; so 12 to 15 more is a lot.
Rodrigo Noriega, lawyer and columnist for the Panamanian newspaper The Press
The estimated cost of the reservoir is approaching 900 million. The canal administration is aiming for a call for tenders around the middle of 2024 and the opening of the site at the beginning of 2025. But this timetable is optimistic: the expansion of the locks was completed two years late, in 2016, and this project has been marred by disputes over costs.
The new reservoir also involves the acquisition of land protected by a 2006 law and the displacement of part of the inhabitants. Mr. Noriega believes that the Panamanian Parliament will overturn the ban on land acquisition. But he points out that new water sources could be found elsewhere.
PHOTO BY NATHALIA ANGARITA, THE NEW YORK TIMES
The level of Gatun Lake, one of the water sources for the Panama Canal, is very low this year.
Without new water supply, the canal could lose a large part of its activity. Other shipping routes are longer and more expensive, but the risk of unpredictable delays is lower.
One possibility is to route shipments between Asia and the United States through the Suez Canal to ports on the east coast of the Gulf of Mexico. We are also considering Asia-West coast routes, with then transport to the east by train or truck.
“In theory, the cheapest, shortest route is always better, but at some point, uncertainty is deadly,” summarizes Chris Rogers, senior transportation analyst at S&P Global Market Intelligence.
This article was published in the New York Times.
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