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The Panama Canal has become a vital link in the web of global trade, especially that trade that connects Asia and the U.S. U.S. commodity export and import containers account for 73% of Panama Canal traffic, representing about $270 billion in cargo. That trade is now constrained, as water shortage has reduced the Canal’s throughput…

For months, the global shipping community has been closely watching the Panama Canal, as a severe drought has threatened water levels and forced the Panama Canal Authority to enact restrictions on the maximum weight and size of vessels that can transit its waters. The impact of the Panama Canal Authority’s restrictions has been negligible, as lower shipping demand offset any vessel weight restrictions–until now…

It takes almost 200 million gallons of water for every ship to transit the Panama Canal. And, in a drought, that’s become a problem. The Panama Canal operates with a lock system that is fed via freshwater drawn from Lake Gatun. The water flows from the lake, the high point of the canal, down through the lock system and is then discharged to sea. While the canal’s newer locks can recycle about 60% of its water, it still requires a tremendous amount of water for every ship to pass through.

At this time of year, the lake’s average water level should be around 87 feet, but the lake currently sits at 81.8 feet and is forecasted to remain at or near that level through January. To make matters worse, the lake is only receiving 70% of the intake it needs (largely from rain) to satisfy the canal’s water usage.

To combat this, about a year ago the Panama Canal Authority began limiting the draft of vessels (the distance between the waterline and the deepest point of the boat) that are using the canal. The current draft limit is 44 feet (from a normal 50 feet). A lot of factors influence the draft of a vessel but the number one factor which can be controlled most readily is the vessel’s weight. For every one foot of draft reduction, a container ship has to reduce its weight by the equivalent of 300-400 TEU (at 14 tonnes of cargo). Therefore a six-foot reduction in draft equates to 1800-2400 TEU of reduction in vessel capacity.

As the reduction in vessel draft proved to not be enough to manage Lake Gatun water levels, the Canal Authority began to limit the daily transits of vessels. The canal normally sees 34 planned transits per day. This has been reduced to 24 transits and is forecast to reduce to 18 by February 1, 2024…

“What You Need To Know About the Impact of the Panama Canal on Global Logistics”

Consequently, shipping companies are faced with a thorny choice: They can risk waiting for days, pay a big fee to jump the line (currently running at $4-4.5 million per passage), or avoid the canal entirely by taking a longer route… any of which increase the cost of transit– a cost that likely to show up in prices…

… Shipping companies are set to incur heavy losses due to the bottleneck. Maersk, which is the second-largest shipping company in the world, said it was working to ensure the backlog did not disrupt its deliveries. “We follow the guidance from the Panama Canal and adapt our intake on relevant services in advance of the departure at origin. Maersk remains committed to minimizing disruptions to our operations,” it said in a press release. The Danish company moves more than four million TEU (Twenty Foot Equivalent Unit) vessels every year. In 2021, it saw its revenues reach $62 billion. Maersk added that the low water levels in the Panama Canal were a stark reminder of the climate crisis, and its ripple effect on global supply chains.

There is still no estimate of how much the Panama Canal jam will cost shipping companies, but the situation is a reminder of the 2021 crisis in the Suez Canal in Egypt. In that case, shipping companies suffered multi-billion dollar losses when the Ever Given container ship got stuck and blocked access to the canal…

“The economic impact of the Panama Canal jam: Inflation and shipping losses“

Capacity is down; time-to-market is up; and costs are rising: The Panama Canal is under environmental pressure.

See also: “Drought Saps the Panama Canal, Disrupting Global Trade” (gift article).

* Clive Cussler, Blue Gold

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As we deal with drought, we might recall that it was on this date in 1982 that a soil sample taken in Times Beach, Missouri, was found to contain 300 times the safe level of dioxin (c.f. Agent Orange). A byproduct of the manufacture of hexachlorophene (banned in 1972) by NEPACCO (the North Eastern Pharmaceuticals and Chemicals Company), the dioxin was meant to be stored securely onsite, but was eventually improperly disposed of in a trench in the facility, and by a local waste handler.

Times Beach– well over 2,000 residents– was completely evacuated and relocated early in 1983. The land that was once Times Beach is now Route 66 State Park. One building from the town still exists: the park’s visitor center was once a roadhouse from Times Beach’s glory days and was the EPA’s headquarters for the area.

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