The world’s trade could be hit by yet another blow after it already experienced huge setbacks due to the coronavirus pandemic and the war in Ukraine. Extreme drought has become the new enemy faced by cargo crossing through the Panama Canal, a major trade route vital to the worldwide economic cycle. More than 14,200 ships passed through this maritime route in the fiscal year of 2022.
Gatun Lake, an artificial body of water located in Panama, provides water to the Canal’s locks alongside another artificial lake, Alajuela.
The lakes should guarantee the supply of 202,000 m³ of water for each transit through the Canal.
While the reserves can be up to as much as 26 metres above sea levels, the lack of rainfall has caused the water levels to drop in recent months.
Between March 21 and April 21, the Panamanian Canal Authority (ACP) said to have seen water levels in Lake Alajuela fall by seven metres.
To complete the transit safely, container ships are now forced to lighten their loads to be able to pass through without incidents.
The ACP also had to limit the largest ships passing through – a move affecting the Canal’s finances, as these vessels are those paying the most tolls.
Last week, authorities in the Canal banned the passage of vessels exceeding 13.6 metres draft – the depth at which a ship sink under water.
On May 30, a further reduction was enforced, with the limit reaching 13.4 metres.
While this seems a minor change, authorities have estimated some container ships will be forced to shed 40 percent of their cargo to abide by the new regulation.
READ MORE: Russia’s Wagner group boss in angry tirade after Moscow drone strike
The restrictive measures will result in delays and higher costs, with Bloomberg reporting at least four shipping companies announced extraordinary tariffs amounting to £243-£405 ($300-$500) per container will be enforced from June 1.
Future forecasts aren’t signalling there will be a relief from the drought anytime soon.
Jon Davis, chief meteorologist at Everstream Analytics, told Bloomberg: “The pattern continues to feature below-normal rainfall across Panama for the foreseeable future. As a result, we expect lake levels to decline and the impact on shipping through the canal to worsen.”
Authorities and transport chiefs are searching for solutions. Vespucci Maritime boss Lars Jensen believes there are two main alternatives for transporting goods via sea – going from Asia to the US west coast or transporting goods from Asia to the east coast via the Suez Canal.
He said: “Either way, it will create some upward pressure on freight rates in the transpacific.”
Both solutions would either add extra costs or transport time, with possible ripple effects on the whole trade.
Former Canal administrator Jorge Quijano urged to look at new water resources to tackle the issue, warning the climate crisis won’t affect just the Panama Canal.
He told AFP: “Without a new reservoir that brings new volumes of water, this situation will remove the Canal’s capacity to grow. It is vital to find new water sources, especially faced with the climate change we are seeing, not just in our country but all over the world.”
Additional reporting by Maria Ortega.
