Panama Canal to Reduce Shipping Transits
Persistently low water levels and geopolitical turmoil are forcing the Panama Canal Authority to cut shipping transits in the waterway, the government agency’s new head announced this week (Financial Times, subscription).
What’s going on: “Daily transits through the canal could fall to as low as 27 … a decline that would amount to a ‘worst-case scenario,’ warned Ilya Espino de Marotta in an interview with the FT.”
- The problem of water levels, which have typically dropped worryingly low “every three years or so” due to climate change, has been compounded in recent years as Houthi attacks and the U.S.–Iran war led to a surge in routing through the Panama Canal.
- The canal, a “50-mile marine shortcut between the Pacific and Atlantic oceans that carries 40% of U.S. containerized trade” (The Wall Street Journal, subscription), has typically allowed passage of 35 to 36 ships a day.
- On Sept. 4, it lowered that number to 34, and on Sept. 15, it will lower it again to 32.
- The canal is a key revenue generator for Panama.
What it’s meant thus far: The conflict with Iran led to an uptick in the canal’s usage, as shippers sought ways to circumvent the fighting—and it led to significantly higher costs associated with the daily auction process the authority uses to limit bottlenecks.
- Prior to the war, the average January and February auction price for ships traveling through the standard and larger locks of the canal was $66,150 and $253,180, respectively; it is now $478,750 and $1.25 million, according Argus Media.
What’s being done: The authority is developing the Rio Indio project, a new lake that “will be able to accumulate enough water to provide for up to 10 to 15 additional transits per day” and will be ready in 2031 or 2032, Espino de Marotta told the Journal.
Other endeavors: There are also plans to construct a liquefied petroleum gas pipeline, and companies including ExxonMobil have expressed interest in participating.
