Due to low water levels, officials have had to reduce the number of ships allowed through the Panama Canal, causing disruptions in global supply chains and increasing transportation costs.
Surprisingly, the decrease in ship traffic has not yet resulted in a financial crisis for the canal, as they implemented significant toll increases before the water crisis began. Additionally, shipping companies have been willing to pay substantial amounts in special auctions to secure a spot for the reduced number of crossings.
Despite a 1.5 percent decrease in tonnage shipped through the canal in the 12 months leading to September, the canal’s revenue increased by 15 percent to nearly $5 billion.
The Panama Canal Authority did not disclose the exact amount earned from auctions, but auction fees could double the cost of using the canal during quieter shipping seasons. For example, Avance Gas paid a $401,000 auction fee in addition to the regular toll of $400,000 for shipping liquefied petroleum gas.
The canal’s ability to remain financially stable during a severe water shortage demonstrates how crucial links in global supply chains are adapting to climate change disruptions. Furthermore, the lack of viable alternatives to the canal in Latin America contributes to its financial resilience.
If delays persist and costs continue to rise, shipping companies may seek alternative routes to avoid the canal, such as using the Suez Canal for voyages from Asia to the East Coast of the United States.
Despite being one of the wettest countries globally, Panama experienced a significant drop in rainfall last year, leading to water shortages for the canal’s locks. Climate experts predict that such water shortages may become more frequent due to climate change.
To conserve water, the canal authority reduced daily passages from 36-38 vessels to 22 by December. However, with higher-than-expected rainfall and water conservation measures, they have been able to increase crossings to 27 per day.
Analysts believe that despite the below-normal number of passages, the canal remains in decent financial standing, with revenue expected to remain stable due to toll increases.
This financial stability is beneficial for Panama’s government, which heavily relies on canal payments. Despite facing skepticism from international bond investors about its deficit, the government is expected to receive $2.47 billion from the canal authority this year.
Canal tolls and dividends accounted for 24 percent of government revenue in 2023, highlighting the canal’s importance to Panama’s finances.
In response to the possibility of continued lower rainfall, the canal authority plans to create a new reservoir to supply extra water for additional daily passages. The project is pending approval from lawmakers and is estimated to take four to six years to complete.
