Higher Prices, Longer Delays for Americans With Panama Canal’s Shortage of Water

Global warming is affecting shipping through the Panama Canal, delaying U.S. imports of everything from new cars to fuel.

Every ship traversing the canal between the Atlantic and Pacific oceans requires 50 million gallons of fresh water, drawn from two man-made lakes in the middle of the isthmus. But reduced rainfall there this year has made water levels in the lakes drop precipitously, meaning less water to feed the canal, let alone fresh water to the locals.

That’s led to a 200-ship wait on both sides of the canal, delaying passage of goods. And the ships that are being allowed through, some booked a year in advance, can carry less cargo because their draught (how deep the ships ride in the water) has been reduced from a 50-foot depth to just 44 feet.

That reduces the through-put as each ship can each carry less cargo. Huge “neopanamax” vessels (140 feet long and 180 feet wide) usually draw 60 feet in depth, so their cargos also have been reduced.

As a result, some of these mega-ships that carry liquified propane or butane (or up to 13,000 shipping containers) are having to divert all the way around South America or circumnavigate the globe the long way, via the Suez canal, adding to fuel prices in the U.S.

Even smaller ships are facing delays as traffic in the canal is now limited to 32 crossings per day from the usual 36.

To monetize the supply-demand imbalance, some shippers are bidding on auctions to prioritize their vessels. While a usual Panama crossing might cost shippers $400,000 per trip, a few shippers are paying as much as $600,000. All of which means more expensive prices for imports in the U.S. where 73% of the cargo (worth $270 billion annually) is headed, including to ports like Port Elizabeth in New York Harbor.

One beneficiary of these delays may be the Trans-Panama Railway (which pre-dates the canal and is now co-owned by the Canadian Pacific Kansas City railroad). Ships that can’t wait for the canal can offload their cargo on one side of the isthmus, put it on trains that make the 47-mile journey and load it on another ship on the other side to complete its journey. If improved, the railway could carry up to 1.4 million containers annually.

To alleviate the canal’s water problems, the Panamanians have hired the U.S. Army Corps of Engineers (builders of the original canal) for a $10 billion contract to divert water from inland rivers into the man-made lakes feeding the canal’s operations. But this will be a 10-year project.

So after a COVID-era nightmare of shipping delays at U.S. ports like Long Beach, California (which led to many carriers using the Panama Canal to go directly to East Coast U.S. ports), import delays will persist. But this time it’s not due to high U.S. demand for imports but global warming’s effect on rainfall in the jungles of Panama.