The epicenter of world trade and transportation is being slowed down due to an unprecedented drought. The Panama Canal is an artificial 82-kilometer (km) waterway in Panama, a transcontinental country in Central America. It connects the Atlantic Ocean with the Pacific Ocean, enabling ships to pass between North and South America. Without the Panama Canal, ships in the Atlantic Ocean would have to travel much farther to arrive at the Pacific Ocean, following the route that goes all the way down to Chile and back up, causing immense loss of time and money. In fact, according to Marketplace, the Panama Canal is estimated to handle approximately six percent of world trade. However, due to a severe drought in regions near the canal, the passage of vessels is being slowed down.

For a vessel to transit the Panama Canal, significant amounts of water are required. According to Canal de Panama, the official website of the Panama Canal, it uses a system of locks - compartments with entrance and exit doors. The locks function as water lifts: they raise the ships from sea level (either Pacific or Atlantic) to the level of Gatun Lake (26 meters above sea level); thus, ships navigate through the channel of the Canal, in the Central Cordillera of Panama. The water used to raise and lower the vessels in each set of locks is obtained from Gatun Lake and transported by gravity. During this process, 200 million liters of water are used.

History of the Panama Canal

The Panama Canal has played an important role in international trade throughout history, with its origin dating back to the early 16th century. According to Canal De Panama, after Vasco Nunez Balboa discovered that only a narrow strip of land separated the two oceans, Holy Roman Emperor Charles V, who was also Charles I of Spain, initiated a movement to build a passage across the isthmus. However, it was regarded as impossible to complete due to its workload.

After France first attempted to build the canal and made progress until they ran out of money in the 19th Century, the United States (U.S.) formally took control of the property in the 20th Century, completing the canal. The first ship passed through the canal in 1914. Water supply at the canal became problematic during the 1930s, but construction of the Madden Dam, a dam constructed across the Chagres River above Gatun Lake, was completed in 1935. Meanwhile, after the Torrijos-Carter Treaties were signed in 1977, the Panamanian government eventually took full control of the Canal at the end of 1999.

Effects of the Severe Drought

The historic drought that struck much of Central America, including Panama, has resulted in low water levels in Gatun Lake, the main source of freshwater used to raise and lower vessels that transit the canal. Because of high air pressure in the western Pacific caused by El Nino, the warm phase of the El-Nino-Southern Oscillation (ENSO), situations have worsened. According to the Supply Chain Management Review (SCMR), the water levels of Gatun Lake are currently at 79.7 feet, a significant decline of 7.41 feet in September 2022.

According to Reuters, 116 vessels and ships were waiting to pass through the canal on September 13, 2023, with the maximum wait time being 14 days. One reporter from Insider said that the congestion at the Panama Canal is so bad that one shipper paid 2.4 million U.S. dollars (USD) to cut queues and get through the waterway. Although container ships have yet to be affected by the congestion as they are normally prioritized, waiting times for gas tankers or bulk carriers have spiked. According to CNN, Everstream Analytics, a supply chain company, told them in an email that ships are currently required to reduce their loads. They added, “If container lines are forced to continue to load fewer containers, we could see issues for US companies trying to replenish inventories ahead of the year-end holiday season — for everything from Christmas decorations to furniture and toys.”

Possible Solutions

The Panama Canal Authority took water conservation measures prior to the driest season and are still conducting measures to conserve water, including reducing maximum ship weights and daily ship crossings. According to Seatrade Maritime, the Panama Canal administrator Ricaurte Vasquez stated, “We have implemented procedures such as cross-fillings, cross-spilling and short chamber lockages in the Panama locks and increased the use of water-saving basins in the neo-panamax locks.” Additionally, they took measures in and out the canal, such as minimizing direction changes between northbound and southbound transits in Gatun locks, maximizing tandem lockage, and suspending hydroelectric power generation.”

In fact, companies assure their consumers that the Panama drought will not significantly affect the prices of their goods, due to their preliminary measures to prevent prices from being vulnerable. Due to the pandemic, computer chip shortages, port congestion, and a serious lack of truck drivers all together resulted in a serious global shortage in 2021. Corporations have implemented prevention measures after this incident, which helps companies whose supply chains are currently under stress due to the Panama Canal drought. As reported by *CNN*, Kamala Raman, vice president and team manager at Gartner’s logistics, says that many companies have already taken steps including reshoring and nearshoring to alleviate the negative effects of the drought.

The Panama Canal drought is certainly a threat to the global supply chain. Through the long history of the Panama Canal, it can easily be seen that many have wanted to claim ownership of the Panama Canal due to its crucial role in global trade. The Panama Canal was originally designed to use the water of Gatun Lake, which makes the canal’s operation easily affected by the amount of water. The unprecedented drought is delaying the transit of ships, and consequently the arrival of goods needed on time. For companies to survive through thick and thin, preparing alternatives will be necessary.