What ails the Panama Canal?

The Panama Canal is one of the world's most important maritime shortcuts.

Connecting the Atlantic ocean to the Pacific via the narrow isthmus of Panama, this canal allows cargo ships to cross back and forth between the oceans quickly.

However, droughts and seasonal weather patterns – worsened by climate change – have become a threat to the navigability and the future of the Panama Canal.

The alternative route to go between the Pacific and the Atlantic would be to sail around the Southern tip of South America, across the turbulent Drake Passage or the Strait of Magellan, both of which take an additional three weeks.

For global logistics operations, choosing to take the Panama Canal is usually a no-brainer. But in recent days, the decision has become harder to make.

Drought conditions mean the Panama Canal Authority limited the number of ships allowed to use the canal to 24 per day since the beginning of January. Before these restrictions were put in place, 36 ships used to use the canal on any given day.

The reason?

According to a notice posted on the Panama Canal's official website, the "restriction is in response to the challenges posed by the current state of Gatun Lake, which is experiencing unusually low water levels for this time of the year due to the drought induced by the El Niño phenomenon".

The Panama Canal's engineering is quite unique, as it is one that connects two oceans, yet does not sit on the sea level. The canal uses a lock system to lift huge cargo ships up to 26 metres above sea level, to the elevation of the canal that sits on the ground. This requires a tremendous amount of water to be pumped into the lock chambers, and the main source of that water is the artificial Gatun Lake.

The lake was created by damming the Chagres river, and its water level is vital to the operating capacity of the canal.

The lakes water levers have lowered due to severe droughts, caused in part by El Nino, a weather phenomenon that occurs once every two to seven years. It has a wide ranging effect on global weather, but in the Pacific ocean, it drives temperatures up.

In Panama, this had led to a delayed start for the rainy season in 2023. As a result, freshwater levels in the reservoirs used by the Panama Canal, like Gatun Lake, have stayed low.

Climate change is a highly relevant factor in all of this, as studies have found that El Nino effects are intensified due to climate change. According to the canal authorities, October, 2023 was the driest October on record for the canal watershed.

Other than limiting the number of ships, the canal authorities have responded to this crisis by capping the draft limit of ships that ply the Panama Canal. It means ships that go through this route cannot carry loads at full capacity.

All of this has led to long waiting times for non-booked vehicles, expensive booking rates, and the authorities auctioning off some booking slots to the highest bidder. As a result, shipping businesses have already started to react to these changes.

Maersk, one of the largest shipping companies in the world, has announced that its cargo vessels headed to and from the Oceania region from eastern North America will be routed using Panamanian ports on the Pacific and the Atlantic, which are connected by rail.

Building another reservoir could be a long term solution to ensuring the survival of the canal.

The Panama Canal Authority has a plan in place to dam the Indio river to create a reservoir to supplement the Gatun Lake. But political support behind this initiative is low, as this will require overturning a law that was passed in 2006 restricting the canal authorities from building another reservoir.

On top of all this, the Panama Canal reservoirs supply over half of the drinking water for Panama's population, so any new infrastructure remains a sensitive topic.

With Panama struggling to maintain its famous canal, other countries in the region like Mexico and Nicaragua are coming up with their own plans to provide alternatives.

But any solution to this current bottleneck in global trade must consider how climate change will continue affecting trade on the seas in the future.