Panama Canal May Further Reduce Ship Transits Due to El Nino Drought

The Panama Canal Authority may further reduce the number of ships allowed to transit the waterway if a strengthening El Nino weather pattern worsens the country's drought. Ilya Espino de Marotta, the new administrator of the canal, stated on Monday that limits could potentially be reduced to 29 slots per day in February or March. This follows a nationwide state of emergency declared by Panama on August 26.

The canal, which handles five percent of global maritime trade, has already implemented restrictions. Daily ship limits were reduced from 36 last month to 32 by mid September. Additionally, authorities reduced the maximum draft from 15.2 meters to 14.6 meters, meaning ships may need to carry less cargo to float safely. Each ship transit requires approximately 200 million liters of water, which is sourced from two reservoirs that have seen levels drop due to the drought.

These restrictions occur as the canal sees increased demand. Shippers are seeking the Panama Canal as an alternative to the Strait of Hormuz, which has been blocked by Iran in retaliation for the war involving the United States and Israel. Some vessels have reportedly paid over one million dollars at auction to secure transit slots.

While the current situation is critical, Espino de Marotta does not expect restrictions to reach the severity of the 2023 to 2024 drought, when daily crossings fell to 22. As a long term solution, Panama is planning a new reservoir at Rio Indio. This project is expected to take five to six years to complete and aims to secure water for canal operations and half of the population for the next 50 years.