The Panama Canal Crisis: Drought and Climate Change Threaten Global Trade Route

2023-08-22 18:41:11

One of the most important sea lanes in the world, the Panama CanalIt is going through an unprecedented crisis. The usual transit of ships through this area has been reduced due to the lack of rain, a drought that has already extended for several months and that the experts point directly as another consequence of the climate change. In this case, however, there are also concerns regarding the economic repercussions as this pass connects 180 sea lanes and accounts for 3 per cent of world maritime trade.

The engineering of the Canal, affected by the drought

“What you see today in Panama it is a drought associated with various phenomena that reinforce each other,” Yasna Palmeiro, a researcher at the Center for Public Policy at the Catholic University of Chile, told DW. The expert points to the effects of climate change, exacerbated by the El Niño phenomenonwhich have fostered an increase in temperatures and a decrease in precipitation.

The lack of rain has brought consequences for the canal. Gatun Lake is at very low levels, and the complex system of locks -using fresh water- that allows large freighters to cross this interoceanic highway depends on it. This reservoir also represents a crucial water source for more than 50 percent of the country’s population, said the Canal Authority (ACP) itself.

“The great disadvantage of the Panama Canal compared to others such as the Suez is that it operates with fresh water, it depends on rainwater and, therefore, on the evolution of climate change,” Mar Gámez, an expert lawyer in law, told DW International mercantile in the consultancy RRYP. “It’s clear that if the water levels in areas like Gatun Lake drop, traffic has to stop, at least partially,” she said.

In fact, the ACP announced that the daily transit capacity would be limited to 32 vessels, compared to the 35 or 36 that previously circulated, and that the depth of the Canal would be set at 13.41 meters, a measure that would be maintained “unless there are significant changes in the meteorological conditions,” said the Panamanian agency. As a result of these restrictions, the waiting time to continue the route has increased on both sides, especially for vessels without a reservation, the ACP said.

Supply chain pressure

The location of the Panama Canal represents a critical transit point both economically and strategically, so the resulting congestion, delays and cargo limitations are putting upward pressure on shipping costs, Sonali Chowdhry tells DW, Associate Researcher at the German Institute for Economic Research (DIW Berlin). “In the short term, it can be expected that there will be situations of shortages such as those observed during the blockade of the Suez Canal in 2021 and knock-on effects,” he says. Chowdhry adds that companies are considering alternative routes and modes of transport, adjustments that “might impact end consumers.”

Víctor Giménez Perales, a postdoctoral researcher at the Kiel Institute for the World Economy, stresses that this crisis might be even “more damaging” than the obstruction of the Suez Canal due to doubts as to when it will be resolved. “Uncertainty might force ships to use the Cape Horn route during the dry season, adding thousands of kilometers and several weeks to the voyage,” he explains.

The ACP reported that this route remained competitive despite the adjustments in draft and that attention would now focus on including “proactive environmental initiatives”, such as “developing a logistics corridor to diversify cargo handling options within the country”. According to your latest reportmore than 14,000 vessels crossed through the waters of the Canal in 2022.

Change of model?

The low level of water on the Isthmus of Panama route has highlighted the argument of some experts who point to a paradigm shift in current consumption models. “We must ensure that supply chains are less and less dependent on fossil fuels and that our consumption patterns are less intensive,” Alejandro Alemán, coordinator of the Climate Action Network (CAN) Latin America, told DW. “There is going to come a time when as a species and as a planet, we have to address the limits of growth,” he says.

In Gámez’s opinion, we still have to wait and see the real consequences of this crisis, and part of the premise of the “resilience of world trade”, which was observed during the coronavirus pandemic. “The question here might be, will Nicaragua and China take advantage of this situation to make the canal project that began in 2012 a reality?”, questions the expert.

(dzc)

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