Drought Could Jeopardize Cargo Flows Through Panama Canal

The worst drought in Panama on record risks creating another bottleneck in global trade and strain supply chains as the water levels in the Panama Canal are at their lowest level since one of the world’s most important trade chokepoints opened for navigation in 1914.

The Panama Canal, an important route connecting the Pacific Ocean with the Caribbean Sea and the Atlantic Ocean, has seen this year record-low water levels in its Gatún Lake. Authorities have already imposed some navigation restrictions to cope with the drought.

Container ships have had to reduce their loads by around one-quarter over the past month as a result of those restrictions, The Wall Street Journal reports.

Container traffic continues, but some shippers have had to unload containers on the side of the canal on the Pacific Ocean, move them by rail, and then return those to vessels before crossing through the side of the Atlantic Ocean.

Although not a major oil trade route, the Panama Canal handles U.S. LNG cargoes from the U.S. Gulf Coast and copper cargoes from large producer Chile.

In the middle of April, the Panama Canal Authority lowered the maximum draft level for Neopanamax vessels transiting the interoceanic waterway due to the recent drought, which has resulted in low levels in its lake system. Vessels making the transit will be offered a draft of 47.5 feet instead of the maximum allowed, which is 50 feet, the authority said.

Earlier this month, it said that “LNG carriers transiting through the all-water route typically report drafts of up to 37 feet, hence these temporary adjustments have had little impact.”

Rainfalls in Panama have been well below average so far this year, and the El Niño—expected to result in higher temperatures and less rain -- could worsen the water-level situation further in July, the Journal notes.  

Bottlenecks on the Panama Canal, which handles around 5% of annual global maritime trade, could result in delays, create additional supply-chain issues, and push up the costs for chartering vessels and moving goods.   

By Charles Kennedy for Oilprice.com

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