Panama Canal operators to cut ship crossings as drought worsens

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The number of ships allowed to cross the Panama Canal each day will be slashed in the coming months as climate change increasingly rocks global trade.

More than 3 per cent of world trade passes through the nearly 110-year-old canal, which relies on freshwater to operate its locks. It is experiencing one of the worst droughts on its record. 

This year, for the first time, canal authorities in the central American nation cut the number of ships that can cross each day, reducing it to 31 a day, down from the average of about 36. On Tuesday the canal authority said it would further limit crossings to 25 bookings a day later this week and gradually reduce it before reaching just 18 from February next year.

The canal authority said October was the driest in the region since 1950, partly fuelled by the El Niño phenomenon, which warms the Pacific Ocean and affects temperature and rainfall around the world. The reservoir system that supplies the canal also provides drinking water for almost half the country’s population. 

“The canal and the country face the challenge of the upcoming dry season with a minimum water reserve,” the canal authority said in a statement on Tuesday. “The Panama Canal urges its customers to make reservations in order to transit as programmed.”

Though the canal has suffered droughts before, it is highly unusual for restrictions to be in place during Panama’s wet season — which runs from May to December.

In August analysts were already concerned about the potential disruption to container shipping caused by the reduction in crossings, and the latest restrictions will begin to take hold in the run-up to the busy Christmas shopping period. The canal’s most important route is between countries in Asia such as China and the east coast of the US, and sees a vast array of goods pass through from petroleum products to vehicle parts and grains.

Some operators, such as those with container ships, are more likely to book slots to cross the canal in advance. Those without reservations are waiting about 2.7 days to cross, according to the canal authority’s data.

“This will bring with it the likelihood that container services will begin to see delays which they’ve been able to previously avoid,” freight forwarder and logistics company Flexport wrote in a newsletter this week.

It said it would expect delays of about two to three days, meaning it would still be faster than the Suez Canal for most Asian shipments. “Heavy and time-critical cargo should consider routing via the US or Canadian West Coast or utilising rail or trucking services.”

The lower number of crossings comes at a particularly challenging time for Panama, which relies on the more than $4.6bn in revenue the canal brings in each year. In recent weeks large protests have broken out in the capital Panama City against a large copper mine that accounts for about 4 per cent of gross domestic product.

After the protests Panama said it would hold a referendum on scrapping First Quantum Minerals’ contract to operate the site. Congress is fast-tracking legislation to enable the vote.

Additional reporting by Oliver Telling in London