The severe drought that began in Panama last year forced authorities to reduce shipping passages through the canal, one of the world's most important trade routes, by 36%. And new cuts announced by Panamanian authorities on Wednesday are likely to deal an even bigger economic blow than previously expected.
Canal managers now estimate that lower water levels could reduce revenue by $500 million to $700 million in 2024, compared with previous estimates of $200 million.
One of the most severe droughts on record in the Central American country has wreaked havoc along the 50mile shipping route, causing a traffic jam, raising doubts about the canal's suitability for international shipping and raising concerns about its impact on global trade.
CDB 150% of CDI
Invest 150% of XP's CDI in CDB and receive an exclusive gift from InfoMoney
On Wednesday, Panama Canal Administrator Ricaurte Vásquez said daily ship transits through the canal will be reduced to 24 after gradual restrictions were introduced last year, compared with a rate of 38 crossings per day in normal times.
“It is crucial that the country sends the message that we are addressing this issue and finding a solution to this water problem,” Vásquez said.
Vásquez added that the passage carried 20% less cargo and 791 fewer ships in the first quarter of the fiscal year than in the same period last year.
Continued after advertisement
It is a “significant reduction” for the country, said Vásquez. However, the official said “more efficient” water management and an increase in rainfall in November could at least ensure water levels are high enough for 24 ships to pass through each day until the next rainy season begins in late April.
Canal authorities attributed the drought to the El Niño weather phenomenon and climate change and warned that Panama urgently needed to find new sources of water for canal operations and human consumption. The same lakes that fill the canal also supply water to more than 50% of the country with a population of more than 4 million. Source: Associated Press.