In the face of a “historically unprecedented” lack of rainfall in Panama, the governing agency that operates the Panama Canal has just issued the toughest restrictions yet on maximum vessel depths and the overall number of ships allowed to pass through the canal daily.
The Ever Max container ship, with a 17,312 TEU (Twenty-Foot-Equivalent) capacity, was the largest ever ship to traverse the Panama Canal when it passed through on August 1, 2023. Because of water restrictions in the canal, however, it was forced to reduce its capacity to just 11,945 TEU — just 69% of its rated capacity -- in order to make the trip. Image: Mike Schuler, via Twitter/X
The Panama Canal, one of the most important means of shipping cargo between the Pacific and Atlantic Oceans since it opened in 1914, is suffering from the most serious drought in its history.
Under normal conditions, the canal, which links trade from over 1,900 ports in 170 countries via 180 different shipping routes, carries between 3.5% and 6% of all trade carried by boat from across the world, depending on the year. Last year the canal brought more 14,000 ships through its passageway. Together, the fees collected from those ships delivered a record high US $2.494 billion of revenue for the Panama government.
The ships make their way from ocean to ocean through an ingenious set of water locks which span 80 kilometers (approximately 50 miles). It does so by filling and discharging roughly 51 million gallons of water for each of the typical average of 35 to 36 ships per day which make it through the canal this time of year. This much water is needed to raise the ships to as high as 26 meters (85 feet) above sea level to match the levels of Gatun Lake and other Lakes the ships pass through. Up to 60% of the water used for each lock cycle is saved in water saving basins and re-used.
The water for the locks is fed by the Chagres River, via Lake Gatun and Lake Alajuela. Both of those lakes are artificial. They were built to meet the needs of the canal long ago. They also provide water for the estimated 4.2 million people who live in the Panama City-Colón region, which includes the capital city and many surrounding smaller cities.
The problem this year is that an ongoing drought which has affected the region now for several years is at its worst yet. Driven by shifting atmospheric conditions and regional heat bubbles caused by the climate crisis, water levels for the two artificial lakes are down significantly from that of previous years. According to the Panama Canal Authority (ACP, the acronym based on the Spanish name for the agency which operates the canal), water levels in Lake Alhajuela fell this year by 7 meters (23 feet) in just one month this year, from March 21 to April 21, 2023.
That works out to a drop in water availability of more than 10% in just a single month.
The ACP’s water manager, Erick Cordoba, expressed serious concern about what this means for the canal and the region, in a recent interview about the drought.
“The lack of rainfall impacts several things, the first being the reduction of our water reserves,” he said.
It also affects the ACP’s overall business more than many might realize. When there is less water, not only is it necessary to decrease the number of ships, it also forces “the reduction of the draft of the Neopanamax vessels, which are the largest vessels transiting the canal”, he added. Those large vessels also pay the most per ship for their transit.
The drought had already forced the Panama Canal Authority to limit the number of those bigger ships five times between January and April. With little new rainfall having happened since then and projections for far less than normal expected in this period, the country’s typically heaviest rainy season, they are about to do it again.
On August 8, the ACP announced it would be reducing the total number of ships which will be allowed to travel through the canal to just 32 ships daily. That is a 10% drop from the normal shipping volume.
The canal operators said that for now they will not be altering the current vessel draft, the depth for the part of the ships which go underneath the water level, for now. It will stay at a limit of 13.41 meters (44 feet) for the neo-Panamax container ships.
Even with that, ships like the new 17,312 TEU (Twenty-Foot-Equivalent) capacity container ship Ever Max, built by the Taiwan's Evergreen company, the largest ship ever to make it through the canal when it passed through on August 1, 2023, was forced to offload 1,400 TEUs in Balboa just before entering the canal. It did so to keep the vessel draft to 43 feet. More of this can be expected as other ships attempt to make it through more fully loaded.
Both the vessel depth limit and the total number of ships allowed to pass through the canal per day could change if the drought continues.
That could happen sooner rather than later. With El Niño conditions having begun to form earlier than originally expected from the previous three-year-long La Niña, higher temperatures in the ocean waters on either side of the canal area and their impacts are being closely monitored.
“As part of a worldwide phenomenon, in the last six months, the Canal has experienced an extended dry season with high levels of evaporation, with a high probability of an El Nino condition before the end of this calendar year,” the Panama Canal Authority said in a formal statement.
If the drought continues, some ocean freight may have to shift to the Suez Canal, which recently doubled its capacity and can handle an increase in traffic.
For North America, the reduction in capacity of the Panama Canal may mean higher shipping costs that will fuel further inflation. However, shipping costs from Asia to the Americas had dropped back to pre-plandemic levels starting last year and have not risen yet due to the restrictions in crossing the Panama Canal.