A container ship in the Panama Canal in August 2023. Bienvenido Velasco (EFE)
More than 100 cargo ships are waiting to cross the Panama Canal, which has had to reduce capacity due to a devastating drought. The backwater could fuel inflation, particularly in the US, and inflict huge losses on shipping companies crossing the strait.
A severe drought in the Central American region, combined with Panama’s historically inefficient water processes, has caused water levels in the canal to drop. Levels have dropped so low that the Panama Canal Authority has had to reduce the number of ships transiting each day from 36 to 32.
“A little over a hundred ships on both sides of the canal [are waiting to transit]’ the agency said in a press release on Tuesday. The economic impact will be felt most in the United States, where prices for the delayed goods could rise. US goods export and import containers account for 73% of Panama Canal traffic and represent approximately $270 billion in cargo. Panama is not expected to be as badly affected by the backlog, as the canal generates just 6% of the country’s gross domestic product (GDP).
The shipping companies are likely to incur high losses as a result of the bottleneck. Maersk, the world’s second-biggest shipping company, said it was working to ensure the backlog didn’t disrupt its deliveries. “We are following the instructions of the Panama Canal and adjusting our intake to relevant services prior to departure at the point of origin. “Maersk remains committed to minimizing disruption to our operations,” a press release said. The Danish company moves more than four million TEU ships (Twenty Foot Equivalent Unit) every year. In 2021, sales reached $62 billion. Maersk added that the low water level in the Panama Canal is a stark reminder of the climate crisis and its impact on global supply chains.
There is no estimate yet of how much the Panama Canal congestion will cost shipping companies, but the situation is reminiscent of the Suez Canal crisis in Egypt in 2021. In that case, shipping companies suffered multibillion-dollar losses when the container ship Ever Given got stuck and blocked access to the canal.
For economist Eduardo Zegarra, Panama’s deficit is a sign of what he has been warning about for years. In 2017, the agricultural and water issues specialist conducted a study for the Inter-American Development Bank (IDB) in which he estimated that water levels in the canal would drop so low that it would impact the global supply chain. “Most likely it will happen two or three times,” he predicted.
Climate change is leading to severe droughts in some parts of the world, while rising sea levels are engulfing coastal areas in other countries. According to Zegarra, climate change is the main cause of the problems in the Panama Canal, but not the only one. “There is a serious problem with the very inefficient use of water for drinking water consumption in Panama City. The contributions paid by the population are quite low. They don’t even cover the basic costs of production,” he explained.
In June 2016, a third transit lane opened in the Panama Canal, increasing capacity. However, no investments have been made in expanding the water source for the canal, says Zegarra. The basin that supplies water to the canal is the same one that supplies the people of Panama City, he explains. “If you look at the value of water for sewer use compared to drinking water, there is almost a five-fold difference. This could be explored by authorities to find formulas for more efficient use of drinking water that would provide a little more availability for water use in the canal,” said Zegarra.
Other incidents
Two other incidents were also recently registered in channels. The first occurred in the Suez Canal, where there was a “light touch” between a LNG tanker and an oil tanker, causing traffic to be disrupted for several hours. Traffic was back to normal on Wednesday.
The second incident occurred in western Turkey’s Çanakkale province when a fire broke out for unknown reasons. As reported by the Turkish broadcaster NTV, the authorities were forced to halt part of the maritime traffic through the Dardanelles Strait and to evacuate nine conurbations as a preventive measure.
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