Panama Canal, responsible for transporting 40% of the world’s cargo ship traffic, is troubled by a severe drought that is threatening the shipping movement. Almost two-thirds of the canal’s traffic is either headed towards or leaving the United States. It is believed that the vessel traffic jams could last for the next ten months.

The canal is a major link that connects the Atlantic and Pacific Oceans and helps companies save time and money by providing a shortcut around the tip of South America. However, at present, the Panama Canal water levels are now close to a minimum due to the unprecedented dry season. The declining water level has led to disruptions in the canal’s daily operations with only 32 vessels passing through it each day causing delays and traffic congestion at sea. Previously, around 36 vessels could pass every day through the Panama Canal.

Chara Georgousi, the intermodal research analyst of Ajot stated that there would be water-saving measures in place for the next 10 months. Even though there is no immediate threat to and from US East and Gulf Coast Ports, the container shipping linking the ports to Asia depends on the Panama Canal and if the lower water level condition persists, it can have major implications, like an increase in freight rates.

Diverting ships away from the Panama Canal and letting them go through the Suez can add weeks onto a trip. Generally, a trip through the Panama Canal takes around 58 days to reach Asian ports but going through the Suez Canal, the trip could be extended to 81 days and using the route around the Cape of Good Hope, a trip could be extended to 88 days. For example, the Panama Canal is a crucial link route for LNG carriers for transporting LNG from the United States to Asia. The diversion of route or restriction in the cargo movement to meet the canal’s requirements can result in less efficient trips and disruption in the supply. The LNG carriers may look for longer routes to reach their destination leading to delays and impacting the spot rate for LNG carriers. This, in turn, can impact the economies of the LNG trade and supply chains.

Concerned, some shippers are being forced to carry up to 40% less cargo into their vessels to avoid hitting the bottom in low water levels. According to reports, moving ships through the canal’s system of locks consumes vast amounts of fresh water, and depending on the ship’s size, it may require 55 to 125 million gallons per ship. As much of that water generally gets flushed into the ocean. The Panama Canal Authority is now engaging in methods to store and reuse some of the water to address the crisis.

The authority is likely to divert water from other rivers and is ready to construct additional reservoirs as the lakes that are diverted by the canal are also the primary source of drinking water for nearby Panama City. With climate change and prolonged hot temperatures in the tropics, the canal’s long-term viability is now a subject of debate for many shippers across the globe.