Panama Canal to reduce shipping as El Niño fuels drought in lakes that feed waterway

The Panama Canal is set to limit the number of ships passing through it starting next month due to a severe drought caused by the El Niño phenomenon, according to the operator of the strategic waterway. From September 3, the daily vessel allowance will decrease from 36 to 34, and from September 15, it will further drop to 32. The Panama Canal Authority reported that rainfall in the canal's watershed region has been 34% less than the historical average from May to August, attributing the lower-than-expected water levels in the artificial lakes that feed the canal.

El Niño, a weather pattern that warms Pacific Ocean surface temperatures, has triggered changes in winds and rainfall, impacting Central America. The canal, handling 5% of global maritime trade and about 40% of US container traffic, is crucial for many shippers, especially for large retailers and energy companies trading between China and the US.

The operator has already implemented water conservation measures, such as lowering the maximum draft for the largest ships. In 2023, restrictions were put in place when the water level was so low that the canal reduced the daily ship transit number from 38 to 22. With the upcoming restrictions, waiting times for ships without reservations are expected to increase.

Currently, nine out of ten ships use the canal with reservations, and the remaining slots are auctioned off. The average winning bid in these auctions was $135,000 before the Iran war. However, one shipping company paid $4 million for a slot in April. The US-built canal's primary users are the US, China, Japan, Chile, and South Korea.

Water scarcity is a sensitive issue in Panama, as the lakes that feed the canal also provide water for half of Panama's 4.2 million people. El Niño, which occurs every two to seven years, is shaping up as one of the strongest on record this year. The Honduran government has placed 80% of the country under a drought alert.