Pratik Bijlani –
According to an analysis by Xeneta, rising water levels in the Panama Canal have rekindled hopes for a return to normalcy in ocean freight container services, which have faced over a year of restrictions due to drought. However, Xeneta urges a realistic outlook, noting that while conditions are improving, a full recovery to pre-restriction transit levels is still a long way off.
On May 16, 2024, the Panama Canal Authority (ACP) increased the total number of ships that can transit the canal daily from 24 to 31. This expansion, however, offers limited benefits for container services, as it primarily accommodates ships with beams not exceeding 107 feet, typical of traditional Panamax vessels.
A more significant improvement for container services is expected on June 1, when an additional transit for Neopanamax ships will be permitted, raising their daily transits from seven to eight. This adjustment will increase the overall number of daily transits from 31 to 32.
The increase in transits was notified to shipping companies on April 15 but took effect in May. Additionally, starting June 15, the maximum allowed draft for ships crossing the larger locks, inaugurated in 2016, will be raised from 13.41 meters (44 feet) to 13.71 meters (45 feet).
“In the coming months, we will be announcing gradual increases in capacity, and we believe that by the end of this year 2024, we could be at normal transit levels,” stated ACP official Moreno.
The Panama Canal, unlike the seawater-based Suez Canal, relies on freshwater from Gatun Lake and Alhajuela Lake. Each ship crossing the canal uses about 200 million liters of freshwater, a resource that also supplies drinking water to 58% of Panama’s 4.4 million residents. In 2023, rainfall dropped from an average of 2,800 millimeters to just 1,800 millimeters, exacerbating the drought conditions.
Before the drought crisis, an average of 39 ships crossed the canal daily. At the height of the crisis in 2023, this number fell to 22, with up to 160 ships waiting to cross. Currently, the number of ships waiting fluctuates between 50 and 60.
The reduction in transits led some shipping companies to pay significant premiums to secure crossing slots in ACP auctions, with one ship reportedly paying up to four million dollars in addition to the toll.
The main users of the Panama Canal are the United States, China, Japan, South Korea, and Chile. The drought’s impact prompted the ACP to implement a reservation system akin to those used by airlines, to optimize transit times and minimize waiting periods. “This Canal water crisis has helped us change our business model and be able to sell that certainty… because for our customer, time is money,” Moreno explained. “Selling certainty through the reservation system… has been one of the great gains of this time,” he added.
Hydrologist Ricardo Güete emphasized that although sporadic rains and ACP’s water-saving measures have improved lake levels, they are still four to five feet below optimal conditions. The situation is expected to improve during the rainy season, which runs from May to November, with forecasts predicting the La Niña phenomenon will bring more precipitation.
“We hope that during this month… the rains will begin to fall, and the situation will normalize,” Güete stated. He noted that last year, despite not being the most severe El Niño, had a significant impact on water availability due to the new locks, population growth, and increased evaporation from global warming.
The ACP is studying the incorporation of new water sources to prevent future crises, but these initiatives require substantial time and investment. “Before, we always had water… This crisis taught us that now managing water is paramount,” Moreno said, reflecting on his 41 years of experience as an electromechanical engineer with the Canal.
As the ACP continues to adapt and improve, the gradual increases in transit capacity and other measures bring cautious optimism for the future of the Panama Canal and its critical role in global maritime trade.
Marex Media