The drought that is impacting shipping logistics on the Panama Canal is set to continue for the rest of the year and into early 2024, according to meteorologists and logistics experts, but container shipping is less likely to be affected than other shipping modes.
The low level of water in the canal has been disrupting shipping operations for months and has led to shipping backlogs, causing deliveries to be missed and delayed for many automotive logistics companies. The Panama Canal Authority (PCA) has been taking measures to try to mitigate the effect of the low tides, and announced that from November 1, the average number of vessels moving through the canal per day will be reduced to 31 from 36.
Jon Davis, chief meteorologist, Everstream Analytics said: “The lifeblood of the Panama Canal is freshwater. Freshwater from the lakes in Panama is used to raise vessels through the lock systems from the Caribbean to the Pacific, and the amount of water that each vessel requires is anywhere between 50m to 100m gallons per vessel.”
He said that Lake Gutan, which is one of the biggest suppliers of freshwater into the canal, is at its lowest level in the past 10 years and is currently the lowest it’s been during a rainy season since 1965.
The developing El Niño warm water current is set to further disrupt normal weather patterns into the new year, worsening the current drought in the region. “As El Niño intensifies over the next year and into 2024, it will certainly be a hinderance,” Davis said. “We do not see any resolution or improvement in the situation in the Panama Canal in the short-term or in the long-term, and it looks like the restriction and the drought conditions are not going to be solved anytime soon.”
Ryan Seah, intelligence solutions analyst, Everstream Analytics, added that deteriorating conditions on the canal have caused supply chain problems but said the effects would not be felt as strongly by container shipping firms, as the PCA has placed a “priority status” on container box ships over every other type of vessel going through the Canal.
“In addition, the operators of these vessels tend to have long-standing agreements with the PCA over contracts, routes and booked passages well in advance of their arrival,” Seah said. “Thus, we have seen that disruptions at the canal have yet to result in dramatic price increases for container spot rates on the Asia to North American route. These ships are also reporting significantly shorter waiting times than average. Consequently, industries relying on container shipping to transport cargo, including automotive, are experiencing less disruptions to their supply chains.”
In response to the drought affecting the Panama Canal, Mexico’s government is reviving the trans-isthmus railway between the Gulf of Mexico and the Pacific Ocean as an alternative for container traffic. The interoceanic railway is planned to run for 303 km, with the main line set to go between ports at Salina Cruz, Oaxaca and Coatzacoalcos, Veracruz. President López Obrador said he plans to have the project running by next September.