Panama Canal traffic cut by 36% due to drought linked to climate change, El Nino

A severe drought that began last year has forced authorities to slash ship crossings by 36 per cent in the Panama Canal, one of the world’s most important trade routes.

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

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

One of the most severe droughts to ever hit the Central American nation has stirred chaos in the 80km (50 miles) maritime 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,” Vásquez 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 diverted vessels away from the crucial corridor for consumer goods and energy supplies.

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US-led coalition strikes Iran-backed Houthi fighters in Yemen

US-led coalition strikes Iran-backed Houthi fighters in Yemen

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

Now, that is no longer an option for most.

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

It was a “significant reduction” for Panama, Vásquez admitted. 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.

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Tree stumps emerge during low water levels at Gatun Lake in Colon, Panama, in November. Photo: Bloomberg

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 4 million people.

“The water problem is a national problem, not just of the Canal,” Vásquez said. “We have to address this issue across the entire country.”

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