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Congestion worsens at Panama Canal

The Panama Canal is no stranger to periods of prolonged dryness with the canal experiencing drought episodes as recently as 2020 and 2015. However, the canal typically receives enough rainfall by the end of the wet season to replenish water systems before the next dry season occurs between December – April. Unlike previous droughts, 2023 has been one of the driest wet seasons in Panama’s history with precipitation totals this year measuring 30% lower than previous yearly averages. El Niño has been driving the country’s poor wet season as conditions tend to suppress rainfall totals in Central America. 

The lack of rainfall has caused water levels in the Panama Canal’s main reservoir, known as Lake Gatun, to remain at record low levels for October and November. The fall in Lake Gatun’s water levels is a major source of concern as October and November are supposed to be the wettest months of Panama’s rainy season when water levels are replenished in the system of lakes and reservoirs used by the canal ahead of the dry season that begins in December. However, there has been little replenishment of Lake Gatun’s water levels this year and there is no indication that the situation will improve during the final weeks of the wet season.  

Panama Canal Authority implements further cuts to vessel traffic  

With forecasts indicating no improvement to the ongoing drought, the Panama Canal Authority (PCA) has announced a series of incremental cuts to the number of vessels allowed to transit through the canal. Daily vessel transit limits were decreased and transit limits will be further reduced at the start of every month. Restrictions represent a roughly 50% decrease in the average number of vessels allowed to sail through the canal compared to daily transit averages of 34-36 vessels under normal weather conditions.  

The reduction in vessel traffic will lead to increased congestion and waiting times at the Pacific and Atlantic entrances to the canal. As of November 13, the number of ships queuing to enter canal rose to 123, significantly higher than the target of 90 ships set by the canal operator. Average waiting times increased, with average waiting times to 0.6 days on the Atlantic side and 2.2 days on the Pacific side. Though the number of the ships waiting to cross the canal is significantly higher than the seven-year averages for this time of year, waiting times are still down from peak levels of 19 days that were seen at the canal in August. 

Increased congestion is already causing disruptions to the oil and gas sector as the Panama Canal is a key route for the shipment of energy products between Asia and the U.S. East and Gulf Coasts. In 2022, energy-based products including petroleum and LNG comprised almost 50% of the entire volume of goods shipped through the canal by weight. Delays at the Panama Canal have caused rates for Very Large Gas Carriers (VLGC) to reach record highs with rates for VLGCs on the Houston-Chiba (Japan) route reaching $250 (€30) per ton, the highest since rates were made public in 2016.  

Falling transit limits have also prompted gas carriers to begin bypassing the Panama Canal altogether by detouring through the Suez Canal on routes between the United States and Asia. Alternatively, gas carriers have also begun paying out increased sums to book auction slots at the Panama Canal.  

Another industry that could be impacted by increased congestion along the canal is the agricultural sector. The canal has historically been the route used by dry bulk vessels shipping U.S. grain, soy, and wheat products to the Asian market. However, many dry-bulk vessels are now choosing to divert and sail via the Suez Canal instead. 

Protests in Panama create further disruptions for shipping operators 

Shipping operators now have fewer ways to bypass delays and fees at the Panama Canal as an ongoing nationwide protest movement in Panama has disrupted a previously used workaround which involved unloading and loading vessels at either end of the canal and moving cargo overland by truck or rail. This method previously allowed vessels to meet minimum draft restrictions while transiting through the canal. However, the Panamanian government’s decision to renew a mining permit for the First Quantum Minerals copper mine has sparked widespread unrest in the country since mid-October and has impacted the ability for containers to be transported through the country by truck or rail.    

Roadblocks were reported in the provinces of Chiriquí, Veraguas, and Santiago while closures along the Pan-American Highway, a major highway connecting several Central American countries, were reported in Horconcito, San Lorenzo, and Santiago. Roadblocks have impacted the movement of cargo vehicles, with financial estimates suggesting that cargo losses have amounted to more than $200 million (€185 million) with the perishable goods sector expecting losses at more than $7.5 million (€6.9 million per week).   

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