More upheaval for global shipping as Panama Canal cuts traffic due to drought

Table Of Content

• Shipping companies already dealing with attacks on vessels in Red Sea
• More than 100 container ships rerouted from Suez canal to avoid Houthi attacks
• Cruisers are getting younger as Gen Z and Millennials take to the seas
• US announces naval coalition to defend Red Sea shipping from Houthi attacks
• Teen pleads guilty to manslaughter over Uber driver's killing on Fraser Coast
• Firefighters fear lingering dry conditions could cause a 'major' bushfire, urge people to be cautious

He told French international news outlet France 24 that the El Niño climate pattern could worsen the situation further. The situation has become so dire that some shipping firms have paid millions of dollars to buy an earlier place in line. But any meaningful next steps will first need to contend with a standing law that prohibits the Panama Canal Authority from constructing reservoirs in watersheds beyond the one that feeds its existing lakes.

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Shipping companies already dealing with attacks on vessels in Red Sea

Water levels in the rainfall-fed lake have remained below normal despite the current "wet season". Container ships are the most common users of the Panama Canal and transport more than 40 per cent of consumer goods traded between north-east Asia and the US east coast. At the same time, last week S&P Global in its Commodities Insights report said it was hearing that coal shipments were being impacted. Some carriers they reported are splitting shipments across two vessels while others were exploring diverting to trips around Cape Horn. Ricaurte Vásquez Morales, the administrator of the canal, previously predicted the canal's income could fall by as much as $200 million next year because of the reduced traffic. For over a century, the Panama Canal has provided a convenient way for ships to move between the Pacific and Atlantic Oceans, helping to speed up international trade.

More than 100 container ships rerouted from Suez canal to avoid Houthi attacks

But added transit time is an issue for fresh fruit, particularly from countries such as Chile and Peru that ship to the eastern US and Europe through the canal. Cherry season in Chile will start to peak in January, and grapes, plums, nectarines and blueberries all could have a hard time reaching market, said Ignacio Caballero, director of marketing for Frutas de Chile, a trade group representing Chilean fruit growers. Princess Cruises operates numerous voyages through the Panama Canal, and the current water level crisis could disrupt their scheduled itineraries.

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Cruisers are getting younger as Gen Z and Millennials take to the seas

But a drought has left the canal without enough water, which is used to raise and lower ships, forcing officials to slash the number of vessels they allow through. That has created expensive headaches for shipping companies and raised difficult questions about water use in Panama. The passage of one ship is estimated to consume as much water as half a million Panamanians use in one day. There are also concerns about the impact of dry weather on the Rhine in Germany, one of Europe’s key shipping routes.

The Panama Canal’s low water levels–a consequence of a drying climate and El Niño–have forced the canal authorities to restrict daily ship transits, disrupting global sea trade and cruise itineraries, including this iconic crossing. Since July 2023, daily transits have been limited due to water shortages in the artificial lakes of Gatun and Alhajuela, reaching 22 vessels in November. From March 25, a total of 27 vessels have been able to pass daily through the waterway, which serves more than 180 maritime routes connecting 170 countries and reaching some 1,920 ports worldwide. The canal, used mainly by customers from the United States, China, and Japan, has a system of locks to raise and lower ships. For every ship that passes through, 200 million gallons of fresh water are released into the ocean. Oil and gas vessels, container ships hauling all manner of cargo, and grain carriers dominate traffic through the canal.

The problems at the Panama Canal, an engineering marvel that opened in 1914 and handles an estimated 5 percent of seaborne trade, is the latest example of how crucial parts of global supply chains can suddenly seize up. In 2021, one of the largest container ships ever built got stuck for days in the Suez Canal, choking off trade. And the huge demand for goods like surgical masks, home appliances and garden equipment during the pandemic strained supply chains to their breaking point. Things are looking up for the drought-stricken Panama Canal as new water levels allow an increase in the daily number of ships allowed through the man-made interoceanic corridor.

Firefighters fear lingering dry conditions could cause a 'major' bushfire, urge people to be cautious

Last week, the ACP announced it had temporarily changed its reservation rules to permit more ships without a booking to travel through the canal. Panama’s population has quadrupled since the 1950s, and more than half the country relies on the canal’s reservoirs — Gatún Lake and the smaller Alajuela — for clean drinking water. Having read the whole article, it seems the cost  rather that drought conditions has changes this particular itinerary on a Royal Caribbean ship. "Each time a ship goes through there, it uses up about 80 Olympic-sized swimming pools of water and that all comes out of the lake," maritime logistics expert from Deakin University Peter Van Duijn told ABC News.

The government agency has reduced maximum ship weights and daily ship crossings in a bid to conserve the canal's water. Only 31 ships will be allowed through the canal per day from November 1, down from circa 36 to 38 daily ship crossings during normal operations. The measures, which will remain in place until 21 August, limit the number of new reservations for vessels passing through the canal’s older locks, used by smaller ships, to make more room for those waiting without reservations. The restrictions led to a bottleneck of ships waiting for their turn to cross and sent companies scrambling to find alternative routes. Commercial ships are facing long queues and delays to travel through the Panama Canal as a lengthy drought in the Central American country has led to a cut in the number of vessels able to pass through one of the world’s most important trading routes.

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Reduced draft depths may necessitate modifications to Holland America Line’s fleet deployment strategy, impacting the availability of certain ships for Panama Canal crossings. Moreover, changes in transit schedules could affect planned shore excursions and port visits along the itinerary. Some of the largest containerships are being forced to offload boxes for transshipment by rail across the isthmus.

The US is a major exporter of grains — soybeans, corn, wheat — to Asia, much of it typically leaving the Gulf Coast and traveling through Panama. But low water levels on the Mississippi River have already prompted some American growers to put their grain on trains to the Pacific Northwest and ship it to Asia from there. Enrico Paglia, research manager at shipping services firm Banchero Costa, said overall US grain exports to Asia have fallen 26% this year compared to 2022, and grain flows through the canal have decreased 37% percent.

Aurora Expeditions is not the only cruise line affected by the Panama Canal’s low water levels. Several other prominent cruise operators rely heavily on the canal for their itineraries, offering passengers unforgettable experiences traversing this iconic waterway. Canal authorities attributed the drought to the El Niño weather phenomenon and climate change, and warned it was urgent for Panama to seek new water sources for both the canal's operations and human consumption. The same lakes that fill the canal also provide water for more than 50 per cent of the country of more than four million people. With shipping companies already dealing with disruptions in the Red Sea due to attacks on ships, word comes that another important trade route is being forced to curtail traffic. The Panama Canal Authority understands the implications but reports it is balancing the issues to keep the canal functioning while also ensuring a drinking water supply for 50 percent of the country’s population served by the same reservoir.

Nikolay Pargov, chief revenue officer for container shipping platform Transporeon, said container ship operators are already booking alternative routes to avoid the canal for 2024. The rigid routes of container ships – which for some shipping companies have thousands of customers to consider for each vessel – make it more difficult to re-route them at the last minute. Snell of British American said the clogged canal forced his company to stop shipping fresh-cut ferns from Seattle to Rotterdam’s flower markets. The business found work-arounds for other products from the US West Coast, hauling nuts and dried fruit from California to Houston or Norfolk, Virginia by rail, then transferring them to container ships bound for Europe.

Some companies had planned to reroute to the Red Sea — a key route between Asia and Europe — to avoid delays at the Panama Canal, analysts say. Panama Canal administrator Ricaurte Vasquez now estimates that dipping water levels could cost them between $500 million US and $700 million US in 2024, compared to previous estimates of $200 million US. Low water levels in the Panama Canal prompted capacity cuts earlier this year and carriers are still facing months of navigating restrictions. There's a backlog of vessels waiting to cross one of the world's crucial maritime passageways which saves ships from travelling thousands of kilometres. The owner of the Dali, the massive cargo ship that lost power and knocked down the Key Bridge on March 26, killing six men, has declared “general average,” according to Darrell Wilson, a spokesperson for the ship’s owner, Grace Ocean Private Ltd[1].

The canal typically handles an estimated 5 percent of seaborne trade, including 46 percent of the container traffic between the East Coast of the United States and Northeast Asia. But last summer, the Panama Canal Authority began taking the drastic measure of reducing traffic. Hapag-Lloyd AG, Mediterranean Shipping Co. and Maersk all have announced new Panama-related surcharges in recent months.