Panama: Canal authority restricts passages

The water level in the Panama Canal is dropping due to the ongoing drought. Since 24 May, the so-called "Neo-Panamax" ships with the permitted ship dimensions of 366 metres long, 49 metres wide and a draught of 15.24 metres (50 feet) have only been allowed to have a draught of up to 13.5 metres for the new locks, instead of the already restricted 13.7 metres. To prevent ships from running aground, the draught restriction was further reduced to 13.4 metres on 29 May.

Supply chains, wasn't there something?

The draught restrictions mean that more ships are needed to transport the same amount of goods. This in turn leads to longer waiting times and disruptions in the supply chains, as 5% of global maritime trade is transported through the Panama Canal every year.

At least four shipping companies have already announced weight restrictions in response to the canal authority's measures or have been charging additional container fees of between 300 and 500 US dollars per box since 1 June. Other shipping companies will follow suit.

Chronic water shortage

The Panama Canal, which connects the Atlantic and Pacific Oceans, has been struggling with water supply shortages since its expansion in 2016. From February to April, less than 50 % of normal rainfall fell in the canal area. The water level of Lake Gatun, the largest of the two canal-feeding lakes, is expected to reach an all-time low by July.

Transport of goods

In April, around 45% of the Neo-Panamax ships were container carriers. LNG tankers, which rely heavily on the canal, are not as subject to the restrictions due to their shallower draught. Nevertheless, bottlenecks could severely disrupt the expansion of LNG exports in the USA and to Germany, for example, over the next few years.

Alternative routes

Freight from Asia to the USA or Europe can alternatively be transported through the Suez Canal. Ports in Southern California are also ready to distribute containers by truck or goods train to the metropolitan centres of the USA.

Forecast

Unfortunately, there is no sign of the usual rainy season in Panama - the weather forecasts predict little rainfall in the foreseeable future. It is therefore to be feared that the water level in the Panama Canal will continue to fall and the restrictions on shipping will increase. During the droughts in 2016 and 2019, the permitted draught limit was as low as 13.1 metres.

Source: Bloomberg