Panama canal traffic drop could cost more than $500 million, as number of ships waiting for Panama transit reduces. Last year's onset of a severe drought has compelled authorities to reduce ship crossings through the Panama Canal by 36%, a critical global trade route. The latest reductions, revealed by Panamanian authorities on Wednesday, are anticipated to inflict a more significant economic impact than initially projected.
Administrators of the canal now predict that the decreased water levels may result in losses ranging from $500 million to $700 million in 2024, a stark increase from the earlier estimate of $200 million.
The Central American nation is grappling with one of the most severe droughts in its history, leading to disorder along the 50-mile maritime route. This has resulted in congestion of boats, calling into question the reliability of the Panama Canal for international shipping and sparking concerns about its impact on global trade.
Panama Canal Administrator Ricaurte Vásquez announced on Wednesday that daily ship crossings would be reduced to 24, following gradual cuts implemented last year from the normal rate of 38 crossings per day.
It's vital that the country sends a message that were going to take this on and find a solution to this water problem.- Ricaurte Vásquez
Vásquez noted that in the first quarter of the fiscal year, the canal experienced a 20% reduction in cargo and 791 fewer ships compared to the previous year.
This decline was deemed a "significant reduction" for the country, according to Vásquez. However, he mentioned that through more "efficient" water management and a surge in rainfall in November, they have maintained adequate water levels, allowing 24 ships to pass daily until the end of April, marking the commencement of the next rainy season.
The authorities of the canal attributed the drought to the El Niño weather phenomenon and climate change. They emphasized the urgency for Panama to explore new water sources for canal operations and human consumption. The lakes supplying the canal also serve as a water source for over 50% of the country's population, which exceeds 4 million people.
The water problem is a national problem, not just of the Canal. We have to address this issue across the entire country.- Ricaurte Vásquez
Due to an ongoing and severe drought, the ACP (Panama Canal Authority) has reduced the maximum draft on its larger locks and significantly decreased daily transit numbers by over 40%. This has led to a notable decline in traffic, prompting many ships to choose longer routes, either circumventing the capes or opting for the Suez Canal. However, the Suez Canal has faced its own challenges in recent months, with the Houthis in Yemen targeting commercial sea traffic in the southern Red Sea.