Panama Canal lifts restrictions after record drought—what’s next?

The Panama Canal has announced the lifting of restrictions that resulted in a significant global shipping bottleneck, following a resurgence in water levels attributable to recent rainfall. According to Ricaurte Vasquez, the administrator of the Panama Canal Authority, the maximum draft has been increased to 50 feet, allowing for up to 36 vessels to transit the canal each day. This decision comes in light of the anticipated continued rainfall through November, which is expected to further enhance water levels in the canal’s artificial lake, crucial for its operations.

Under normal circumstances, the Panama Canal facilitates approximately 3% of global maritime trade and nearly half (46%) of all container traffic from Northeast Asia to the US East Coast. Notably, it is a vital source of revenue for Panama, contributing nearly US$5 billion in the previous year.

Currently, the canal experiences a transit rate of 30 to 32 vessels per day, still shy of the pre-drought capacity which was significantly restricted during the drought period. For context, at the peak of the drought, transit restrictions limited daily passages to a mere 24 vessels. Mr Vasquez indicated that it may take an estimated five to six months for shipping operations to fully normalise.

The exceptional drought, exacerbated by the El Niño phenomenon, marked a historical precedent as it was the first instance where daily transit restrictions were implemented. The authority had even resorted to auctioning transit slots, and many shippers, particularly those transporting crucial liquefied natural gas and liquefied petroleum gas, were compelled to seek alternative routes.

Noteworthy adjustments have been made as vessels are now arriving with larger cargo volumes, thereby enabling a reduction in water consumption while maintaining tonnage stability. Furthermore, the Authority plans to collaborate with shippers to ensure that vessels arrive at the canal fully loaded, maximising efficiency.

While Mr Vasquez acknowledged the potential necessity for seasonal draft restrictions during future droughts, he also emphasised a desire to avoid similar daily transit limitations.

“Creativity was taken to its limit during this dry season,” Vasquez was quoted by The Edge.

Ongoing considerations include the establishment of long-term reservation slots aimed at assuring timely passage for time-sensitive cargoes, with discussions slated to engage LNG and LPG stakeholders next month.

With the possibility of another El Niño-driven drought looming within the next four years, the authority remains vigilant, as such phenomena drastically diminish rainfall levels affecting Lake Gatun, which serves as the principal water source for the canal and provides drinking water to approximately half of Panama’s populace. Unfortunately, there are no immediate plans for new infrastructure ahead of the next anticipated drought.

In light of ensuring a stable water supply, the canal authority is exploring the feasibility of constructing a dam on the Rio Indio, situated approximately 40 miles west of Panama City. This initiative would necessitate discussions with local communities regarding potential relocations, a process projected to span 18 to 24 months. If approval and funding are secured, an additional four years would be required for the construction phase, with an estimated expenditure of around US$2 billion.

Mr Vasquez concluded by affirming the resilience of the Panama Canal and the necessity of maximising collaborative efforts with stakeholders for continued operational success.