Caribbean & Central America - June 2023

The Panama Canal Authority (ACP) has imposed limits on the draught of ships allowed to pass through the Canal after drought caused water levels to fall, raising concerns about the future viability of the strategically important shipping route as the impacts of climate change continue.

The ACP has announced a series of restrictions on the largest ships, the latest of which came into force on 30 May with important knock-on effects on the price of shipping. Drought has led to falling water levels in the Alhajuela and Gatún artificial lakes, the main sources of water for the Panama Canal. The international media has cited the ACP as saying as from 21 March to 21 April water levels in Alhajuela fell by 7m – more than 10% -, with water levels in both lakes are expected to keep falling.

This means that the largest ships have to carry less weight in order to reduce their draft and be able to pass the Canal, as well as paying higher fees to do so. Increasing costs mean that shippers will be encouraged to explore other routes. This is a serious worry for the Panamanian government, which received US$2.5bn in direct contributions to the national treasury from Canal operations in fiscal year 2022.

Unfortunately for Panamanian authorities, there is no sign of relief on the horizon. “The pattern continues to feature below-normal rainfall across Panama in the foreseeable future,” Jon Davis, chief meteorologist at Spain-based consultancy firm Everstream Analytics, told Bloomberg in an article published 19 May. “As a result, we expect the lake levels to decrease and the impact on shipping over the Canal to get worse.” And Luz de Calzadilla, general manager at Panama's meteorology and hydrology institute, told AFP in an article published 25 April that the El Niño climate phenomenon is forecast to bring reduced rainfall in the second half of the year.

• Environmental emergency

On 30 May Panama’s government declared a nationwide environmental emergency due to a prolonged drought as a result of climate change. According to the environment ministry, high temperatures and lack of rain are a preamble to the arrival of a possible El Niño weather phenomenon which could reduce the availability of water for human consumption and agricultural activity across the country. The resolution authorises the agricultural development and environment ministries, the water and sewage utility (Idaan), the national public services’ regulator (Asep), and the institute of meteorology and hydrology (IMHPA), to award special contracts necessary to address the state of emergency.

This is just the latest sign that weather conditions could threaten the continued viability of the Canal. Draught limits were also imposed during droughts in 2019 and 2016, and there is a growing realisation that a new solution must be found. “Without a new reservoir that brings new volumes of water, this situation will remove the Canal's capacity to grow”, former Canal administrator Jorge Quijano (2012-2019) was cited as saying by the same 25 April AFP article, adding “It is vital to find new water sources, especially faced with the climate change we are seeing, not just in our country but all over the world.”

In the short term, the ACP is working to maximise operational efficiency. For example, part of the maintenance work which was undertaken in early May at the Pedro Miguel lock complex was to check for leaky valves. “Now that we have some issues with the drought it’s very important that we keep the valves in good condition to look after the water,” Wilfredo Yau, who is head of maintenance at the local complex, told AFP in an article published 15 May. “It’s like when you have a tap at home, if the tap is dripping you adjust it so water stops coming out,” he said. “Something similar but on a larger scale” is being performed at the Canal, added Yau.

Panama has to find ways to maintain operations at the Canal or risk losing treasury revenues, and there are increasing tensions over water supplies. The Canal basin supplies water to more than 50% of Panama’s 4.3m residents, and shortages have affected several parts of the country, leading to protests at the beginning of April in which residents of La Chorrera city, Panamá Oeste province, closed a highway.