More upheaval for global shipping as Panama Canal cuts traffic due to drought

With shipping companies already dealing with disruptions in the Red Sea due to attacks on ships, word comes that another important trade route is being forced to curtail traffic.

A severe drought that began last year has forced authorities to slash ship crossings in the Panama Canal by 36 per cent.

The cuts announced Wednesday by authorities in Panama are set to deal an even greater economic blow than previously expected.

Panama Canal administrator Ricaurte Vasquez now estimates that dipping water levels could cost them between $500 million US and $700 million US in 2024, compared to previous estimates of $200 million US.

One of the most severe droughts to ever hit the Central American country has stirred chaos in the 80-kilometre route, causing a traffic jam of vessels, casting doubts on the canal's reliability for international shipping and raising concerns about its affect on global trade.

"It's vital that the country sends a message that we're going to take this on and find a solution to this water problem," Vasquez said.

The disruption of the major trade route between Asia and the United States comes at a precarious time. Attacks on commercial ships in the Red Sea by Yemen's Houthi rebels have rerouted vessels away from the crucial corridor for consumer goods and energy supplies.

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The combination is having far-reaching effects on global trade by delaying shipments and raising transport costs. Some companies had planned to reroute to the Red Sea — a key route between Asia and Europe — to avoid delays at the Panama Canal, analysts say.

Now, that's no longer an option for most.

On Wednesday, Vasquez said the canal authorities would cut daily ship crossings to 24, down from 38 a day in normal times last year. Vasquez added that in the first quarter of the fiscal year the passageway saw a 20 per cent drop in cargo and 791 fewer ships than the same period the year before.

It was a "significant reduction" for Panama, Vasquez said. But he said that more "efficient" water management and a jump in rainfall in November have at least ensured that water levels are high enough for 24 ships to pass daily until the end of April, the start of the next rainy season.

Canal authorities attributed the drought to the El Niño weather phenomenon and climate change, and warned it was urgent for Panama to seek new water sources for both the canal's operations and human consumption. The same lakes that fill the canal also provide water for more than 50 per cent of the country of more than four million people.

"The water problem is a national problem, not just of the canal," Vasquez said. "We have to address this issue across the entire country."