The months-long drought affecting the Panama Canal may be coming to a close. The return of annual rains are predicted to raise water levels throughout the 51 mile-long stretch. With the end of the drought, optimistic predictions could see shipping volumes return to their normal levels. If that happens, it would ease one of the most severe pain points faced by supply chains in recent years.
Since Summer 2023, a brutal drought caused water levels in one of the world’s busiest waterways to drop to historic lows.
The reduced water levels have cut the rate at which ships can traverse the Canal in half. By December, long queues developed. According to reports, some captains paid as much as $4 million to jump to the front of the line. Those unwilling or unable to pay inflated rates have been forced to make a difficult choice between weeks spent waiting in line and long, inefficient journeys around the southern tips of either Africa or South America. The drought has also coincided with Houthi attacks in the Red Sea, further disrupting global shipping. As a result the cost of container shipping nearly double year-on-year in Q4 2023.
The end of the drought in the panama canal
Now, however, the start of Panama’s rainy season could see the trade chokepoint resolve itself. The news has been welcomed as global supply chains brace for the busiest months of the year.
According to IMF PortWatch, the number of vessels traversing the Canal averaged 25 per day in April. That’s a significant jump from the record low of 21 in January. However, it’s still a long way below the pre-drought average of 35 ships.
The upward trend is expected to continue, however. The canal’s governing authority recently announced plans to lift the number of daily transits through the canal to 31 in the second half of May. Then, in June, the figure will rise again to 32.
A report by S&P Global Market Intelligence noted that this rise in water levels “should steadily lift the restrictions to global trade resulting from canal disruptions since last year, which is particularly important ahead of the peak shipping season.
“By the end of April, rain is going to begin and we’re going to have a lot,” Argelis Moreno Lopez said earlier this month at a conference at the University of Houston, Bloomberg reports. “That will reverse the situation and go back to normal at the end of the year or next year.”
- Risk & Resilience
- Sourcing & Procurement
