The plan in Panama: A tightening shipping bottleneck

The effects of global warming have disrupted a once-reliable shipping lane. Matt Farmer looks at the future of shipping of shipping through the Americas.

Ships queue for the Panama Canal. Credit: Walter Hurtado/Bloomberg via Getty Images

Miners need shipping like gold ore needs refining. The entire mining industry relies on a system of trade, often enabled by cheap shipping of heavy loads. So as the shipping industry runs into problems, so too might miners. 

Shipping is often kept cheap with extremely low labour costs, cheap fuels, and economies of scale. These first two often stray into worker exploitation and illegal pollution, and decarbonising the industry remains a difficult and unsolved question. But it is the latter that has caused problems this summer, as trade dries up on one of the world’s busiest shipping routes. The Panama Canal forms a bottleneck in modern shipping, just a few hundred metres across, but not as deep as needed.

The Panama Canal’s importance to shipping

Since its opening in 1914, the Panama Canal has dramatically cut the cost and time of shipping. Joining the Atlantic and Pacific oceans, the canal allows many shipping routes to avoid navigating around the Cape of Good Hope, the southernmost point in South America. Travelling around the Cape adds cost, time, and approximately 20,000km to a route travelling between the coasts of Panama. 

While the canal is not absolutely essential to world trade, it is part of its backbone, and its cost-efficiencies have been passed on to the mining industry for decades. In 2021, more than 13,300 ships passed through the canal, and while this may not sound like much, most of these represent massive cargo liners carrying thousands of containers, each of which can contain millions of dollars in goods. 

Aside from intercontinental shipping, the canal also enables shipping between the east and west coasts of both continents. The US is the largest user of the canal, and its coast-to-coast ships have little viable alternative. Approximately 40% of US shipping uses the canal. While crossings can cost between $150,000 and $1m per ship, the alternatives cost more time, and sometimes similar cost. 

Hundreds of years ago, European explorers sought the fabled “North-west Passage” between Europe and Asia without passing the Cape. This generally involved dangerous expeditions into Canada’s Arctic waters, and the endeavour was eventually realised to be impossible due to ice cover, encouraging shipping to use its modern routes. Ironically, due to the effects of global warming, this once-fictional shipping lane can now be navigated. However, it remains risky, isolated, and unreliable; it requires special ships, and has no hope of assistance from coastguards, making it, for the moment, unviable.

The problem in Panama

Recently, the Panama Canal Authority has imposed restrictions on the passage of ships along its two shipping routes. The passage of each ship requires approximately 200,000,000 litres of fresh water to lift ships up and down the canal’s locks. This would usually be gathered from rainwater, but prolonged droughts in Panama have meant delays in the canal. Use of salt water would mean polluting Lake Gatun, one of the artificial lakes at the centre of the Canal that also acts as a drinking water reservoir.

The Panama Canal Authority has tracked water levels in the lake, saying in a statement: “Generally, the lake ends a normal rainy season at a depth of 27.1m (89 feet) in November and ends the dry season at the end of April at 25.9m (85 feet).

Prolonged droughts in Panama have meant delays in the canal

“The lack of rainfall has impacted Gatun Lake, now at 24.2 meters (79.7 feet), compared to 26.6 meters (87.41 feet) in September of previous years.” 

As a result, the Authority has reduced the number of crossings available on one of its routes and has effectively lowered the weight limits for ships on its other route. This has meant delays for shipping, and queues of container ships at both ends mounting for months. At the peak of the delays, 200 vessels queued for an average of three weeks. An unverified report from Business Insider said that in the week of  August 20, one shipper paid $2.4m at auction for a shipping slot that week in order to avoid the queue.

Adapting to new conditions in the Canal

Now queues sit at around 120 ships in mid-September, with delays down to five or six days for traffic without pre-booking. However, restrictions remain, meaning approximately one-third of the largest shipments are still underloaded, while all face delays. 

Generally, ships do not set sail under-burdened, as the low cost of shipping relies on bulk discounts. Instead, ships lighten their loads by transporting some goods overland through Panama, adding to costs.

Despite current conditions, the cost of transiting goods through the Panama Canal averages 0.5% of the container’s cargo value

The Authority remains adamant that the disruption should not affect shipping prices, saying on 29 August: “Despite current conditions, the cost of transiting goods through the Panama Canal averages 0.5% of the container’s cargo value. Thus, the temporary measures in place should not notably affect the final price of goods.” While this may sound reassuring, such an average would not necessarily represent recent cost increases. 

In the US, retailers are already warning that the supply chain disruption could have ramifications for the Christmas shopping season. Aside from consumer goods, and  raw products from mines, miners will likely also feel the knock-on effects of delayed energy shipments. Gas and energy transport companies are some of the biggest users of the canal, and disruption to their shipments could have implications for power systems.

When will the situation improve?

The El Niño weather phenomenon has led to several years of drier weather, but this year has seen the driest August in 109 years. Authorities have already started planning for next year and say that “while the goal is to keep queues below 90 vessels, this situation has been encountered in previous years”. It has also released statements showing total tonnage shipped to be on target for this time of year. 

The area’s dry season and Canal’s peak season now approach, making it likely that the problem will continue into next year. The Canal Authority says that “measures taken will be maintained for the remainder of this year and throughout 2024, unless weather conditions change significantly from current forecasts”.  

The present situation might well be handled before evolving into a crisis, but it will certainly act as an omen of crises to come. In the longer term, as droughts such as these become more frequent, so too will restrictions on shipping. Alongside this, climate change will mean more frequent and severe hurricanes in the Gulf of Mexico, which also affects the shipping lane. 

Another Canal Authority statement says that it is making “proactive efforts” to “safeguard” water storage, and preserve forest cover, which would mean greater water retention in local areas. Alongside this, the Authority also cites the growing use of hydrological data, optimising the canal using modern data processing. It is also “exploring the possibility of developing a logistics corridor to diversify cargo handling options within the country”, which would increase competition among the land-based cargo companies currently handling overspill from the Canal. 

While the Canal itself is considered a modern industrial wonder, perhaps the true marvel will be whatever hydroengineering project safeguards the Canal’s future alongside water reserves for Panama itself. Safeguarding the canal – and ensuring cheap shipping for industry – will require further studies on the dynamics of drainage in the area. While coming dry seasons will likely remain manageable, only this research will tell the future viability of the canal heading into the middle of the century.