Half a World Away, More Bad News for Global Shipping

A severe drought that began last year has forced authorities to slash ship crossings by 36% in the Panama Canal, one of the world's most important trade routes, per the AP. The new cuts announced Wednesday by authorities in Panama are set to deal an even greater economic blow than previously expected. Panama Canal Administrator Ricaurte Vásquez now estimates that dipping water levels could cost them between $500 million and $700 million in 2024, compared to previous estimates of $200 million. One of the most severe droughts to ever hit the Central American nation has stirred chaos in the 50-mile maritime route, causing a traffic jam of vessels, casting doubts on the canal's reliability for international shipping and raising concerns about its affect on global trade.

On Wednesday, Vásquez said canal authorities would cut daily ship crossings to 24, down from 38 a day in normal times last year. Vásquez added that in the first quarter of the fiscal year the passageway saw 20% less cargo and 791 fewer ships than the same period the year before. It was a "significant reduction," Vásquez admitted. But he said more "efficient" water management and a jump in rainfall in November have at least ensured that water levels are high enough for 24 ships to pass daily until the end of April, the start of the next rainy season. The disruption of the major trade route between Asia and the United States comes at a precarious time. Attacks on commercial ships in the Red Sea have rerouted vessels away from the crucial corridor for consumer goods and energy supplies.

The combination is having far-reaching effects on global trade by delaying shipments and raising transport costs. Some companies had planned to reroute to the Red Sea—a key route between Asia and Europe—to avoid delays at the Panama Canal, analysts say. Now, that's no longer an option for most. Canal authorities attributed the drought to the El Niño weather phenomenon and climate change, and warned it was urgent for Panama to seek new water sources for both the canal's operations and human consumption. The same lakes that fill the canal also provide water for more than 50% of the country of more than 4 million people. "The water problem is a national problem, not just of the Canal," Vásquez said. "We have to address this issue across the entire country." (Drought is wreaking havoc around the globe.)