Drought-Stricken Panama Canal Prepares for El Niño Impacts
Mike Schuler reports on the situation in Panama, where lack of rain is causing problems with Gatun Lake — source of the water that lifts ships over the middle of the country and supplies critical drinking water as well.
The Panama Canal Authority (ACP) is closely monitoring the development of climatic events that could impact water availability in the region and shipping through the critical waterway.
Experts anticipate the imminent arrival of the El Niño phenomenon that may trigger an early start of the rainy season in 2024, intensifying the ongoing water shortage in the Panama Canal watershed that has already forced the ACP to lower the maximum draft of vessels transiting the waterway’s expanded Neopanamax locks.
As a preventative measure, the ACP has implemented a series of water-saving strategies aimed at restoring Gatun Lake levels to ensure sufficient water supply for both the human population and smooth ship transits along the interoceanic route. However, the officials acknowledge that these measures may not be able to fully mitigate the economic impact of the water shortage.
“The shortage of fresh water is real and something we’ve been warning about for many years,” said Ricaurte Vásquez Morales, Administrator of the Panama Canal Authority. He pointed to the recent intensification of drought periods, with the last severe drought in the region occurring in 2019 – 2020.
A Panama Canal restriction on ship transits or in a worst-case scenario a shut-down would create major headaches for shippers — see Bloomberg on The Fed’s Inflation Fight Faces A New Challenge: A Dry Panama Canal
...If Gatun Lake levels keep falling as forecast, the market reaction will be higher shipping rates and a scramble to find alternative routes from Asia to the US, logistics experts said.
The drought also risks undermining the Fed’s battle to get the rate of inflation closer to its 2% target, said Jonathan Ostry, an economics professor at Georgetown University and a former International Monetary Fund official.
...The Panama Canal Authority is forecasting a July 31 water level of 78.2 feet (23.86 meters), beating the previous all-time low of 78.3 feet reached in May 2016 and far below the five-year average of 84.9 feet for July.
Making matters worse, an El Niño system is building in the western Pacific Ocean and is expected to upset normal weather patterns by the end of this year. While this can cause heavy rainfall in some regions, in Panama it typically means severe drought and higher than normal temperatures. Erick Córdoba, the head of the canal’s water department, in an interview said El Niño could mean a longer dry season for Panama in 2024, which would also affect water levels.
The drought already is making it more expensive to move goods. The canal authority has steadily reduced draft levels – how low a vessel can sit in the water – since February. To comply with lower drafts, large ships must lighten their loads by taking fewer containers overall or by dividing the same amount of cargo among more containers. Either way, the result is higher price tags for consumer and industrial goods that move through the canal. Some ocean carriers also began charging per-box container fees on June 1 in response to the draft limits.
As I write these words, my backyard in upstate New York is visibly hazy from the smoke drifting down from Canada where wildfires are raging. The effects of climate change are global. Climate Change doesn't care if you believe in it or not, and it can touch you wherever you may be.
Anyone who tells you we can't afford to do anything about it because it would hurt the economy is not paying attention to the rising cost of NOT doing anything. We don’t have a choice.
Draper Kauffman: “...those who do not try to create the future they want must endure the future they get.”