Troubled Waters: The Panama Canal Logjam and the Underlying Issue in Global Trade

By: Jordan Bogle

The Panama Canal confronted an unprecedented challenge over the year 2023: a logjam sparked by plunging water levels, which forced authorities to cut the number of ships that can cross the waterway by 36% compared to normal operating capacity (established as of the inauguration of the most recently constructed locks in 2015). While the need for an immediate solution to this disruption is evident, it serves as an alarm of a more profound challenge. This blockage vividly illustrates how the worsening climate and its widespread impact on water levels create an existential threat to global trade. The canal, as a long-standing symbol of connectivity, now symbolizes the urgent necessity for a collective response to the maritime challenges imposed by climate change.

While historically known for facilitating the seamless passage of vessels between the Atlantic and Pacific Oceans, in recent years the Panama Canal has dealt with operational setbacks due to water scarcity issues. This development has caused shipping experts to express growing concerns, suggesting that if the water levels continue to fall, vessels may begin to divert from the channel entirely. Last year, the number of ships navigating this vital maritime route witnessed a sharp decline due to the insufficient water levels for the canal’s locks.  The resulting bottlenecks have raised costs and introduced delays, causing a ripple effect that disrupts the fluidity of deliveries and global supply chain operations. Moving roughly 270 billion USD worth of cargo annually, serving as the trade route for 40% of all U.S. container traffic alone, and handling about 5% of all global maritime trade, the importance of the passage’s ability to facilitate international commerce is unmistakable.

Climate Change as a Contributing Factor

Despite Panama’s equatorial climate, the past year saw a 30% drop in rainfall, plunging the levels of the lakes that feed into the canal and its locks. This year’s heightened concern arises not just from the immediate drought cycle, but from a noticeable climate shift, as the recurrence of the El Niño climate phenomenon, typically occurring every two to seven years, has become more frequent. The impact on Gatun Lake, the primary water source, has led to historic all-time low water levels due to insufficient rainfall. Gatun Lake water levels hovered close to 80 feet between June and November of 2023, while levels in the lake typically remain at about 88 feet during this season. The Panama Canal Authority has projected water levels to remain below 81 feet at least through March 2024, signifying an extended departure from the normal flow and water levels of the channel.

Disruptions to the throughput at the Panama Canal correspond directly to the low water levels, as the monthly number of transits and the tons of cargo per transit decreased in 2023 compared to recent years. These grim figures underscore the emerging dangerous connection between climate change and the very waterways that sustain global maritime trade on which the international economy is built.

Implications for Global Supply Chains

The repercussions of the standstill extend far beyond its immediate shores, sending shockwaves through global supply chains and across diverse industries. From manufacturing to retail, the logjam has initiated a domino effect of increased shipping costs and delayed deliveries. As the Panama Canal is crucial in the global logistics network, any impediment to its normal functioning resonates across continents.

In an increasingly interconnected global economy, the effect of the drought is felt across countries worldwide, from developing nations to economic superpowers. For instance, the United States, which originates the most cargo passing through the channel, faces supply chain challenges. This is true particularly in automotive manufacturing, leaving many in the industry paying close attention to the issue. Officials in the People’s Republic of China, which follows closely behind the U.S. in cargo volume, are citing similar concerns over rising shipping costs and delays affecting its export-oriented economy.

The delays caused by the impasse have not only made shipping more expensive, but have also stoked concerns about rising inflation. With the increased shipping costs translating into more expensive goods, adding to inflationary pressures globally, impacts of the blockage of passage are reaching consumers, who have already been facing increased costs in recent years due to post-pandemic inflation shocks and increased energy prices. The fiscal consequences extend beyond the immediate disruptions, posing an expansive economic challenge that requires a coordinated and adaptive response to mitigate the potentially recurring impact on global trade and economic stability.

Mitigation Strategies and Adaptation

In response to the immediate threat posed by the holdup, short-term mitigation strategies were swiftly implemented. The Canal’s operational plan prioritizes water conservation as a critical measure to navigate the challenges presented by the historically low rainfall. As an early indication of successful intervention, operational restrictions were temporarily relaxed, increasing shipping slots from 18 to 24, which is still below the standard capacity of 38, in two of the waterway’s locks, to alleviate the immediate impact on maritime traffic. However, the number of ships allowed to cross per day had already been lowered back to 18 in February, serving as a stark reminder that the issue has not been resolved and a larger effort is required.

The urgency to address the functioning of the Panama Canal must have a scope beyond immediate operational adjustments. The Panama Canal Authority is considering potential long-term fixes, such as artificial cloud seeding to boost rainfall and building a new freshwater reservoir, but there are questions regarding the amount of time it would take to implement such options and whether they are sustainable. This crisis must serve as a call for an extensive, collaborative approach to guardrail the world’s crucial passages against the underlying environmental crisis at hand. The vulnerability exposed by this disruption reflects the necessity for nations, especially the biggest beneficiaries of the Canal’s operations, and industries to unite in helping the Panama Canal better adapt to threats from the changing climate. With a situation that will get worse before it gets better, the backbone of global trade is at stake, demanding a coordinated effort to adapt and fortify these critical passages against the unpredictable consequences of our rapidly changing planet.

As crises like the Panama Canal logjam shine a light on the practical impact of climate change on economic interests and global supply chains, it could mark a turning point. This disruption could prompt nations, typically less engaged in climate issues, to take the climate crisis more seriously, given the visible implications for economic and national interests. The tangible effects on economic and trade interests underscore the rapidly growing interconnectedness of environmental issues and global economic stability. Recognizing the vulnerability of crucial trade routes, one can only hope nations may converge on prioritizing sustainable practices, advocating for climate resilience, and collaboratively addressing the broader challenges posed by climate change. If these nations choose not to engage, the current situation will deteriorate, and similar crises will likely recur. As nations face economic repercussions, the people of Panama and global consumers alike will bear significant consequences.

Jordan Bogle is a Political Science and Public Affairs Master of Arts student at SLU-Madrid from Atlanta, Georgia, USA.

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Featured Image Credit: Photo of Ships Panama by Michael D. Camphin on Pexels.