Panama channel struggles to regain momentum after drought as global trade faces turmoil
Date
8/18/2024 8:55:07 AM
(MENAFN) The Panama Canal is facing significant challenges in regaining its former prominence as a key trade route for liquefied natural gas (LNG) and food commodities like grain, following a historic drought last year that prompted traders to seek alternative routes. The canal, which has been a vital conduit for global trade for over a century, experienced severe restrictions in July due to insufficient rainfall, which forced it to limit the number of transits. Although heavy rains have been forecasted to improve conditions, the canal saw a dramatic decrease in traffic, with only 13 LNG ships passing through last month—less than half the number from July 2022. The number of dry cargo ships also dropped by 35 percent over the same period.
Despite these setbacks, Panamanian officials remain optimistic, asserting that container ships continue to use the canal as usual and that the revenue from the canal has increased due to competitive bidding for the limited transit slots available. Nonetheless, these developments underscore how climate-related disruptions are reshaping global trade dynamics and increasing costs. The Panama Canal, which handles around 5 percent of global maritime trade, is under pressure as it grapples with ongoing challenges related to low rainfall and local water conservation demands. The drought, attributed to the El Nino weather pattern, has made the canal a less appealing option for transporting low-value, non-urgent cargo, as the canal's operational constraints have reduced its cost and time advantages.
Previously capable of accommodating more than 36 ships per day, the canal has been forced to cut this number to 20 in January due to the drought's impact. The situation has led to increased transit costs, with one Japanese shipping company reportedly paying around USD4 million to bypass the queue. Despite these hurdles, the canal's revenue for the year ending September 2023 increased by 15 percent, and it is expected to grow by 3 percent in the next fiscal year. However, the drought has necessitated pre-booking for all customers, adding to costs and reducing the flexibility that once made the canal an attractive route for many businesses.
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