The drought has triggered alarms at the Panama Canal this year; on Friday, there were 75 vessels waiting to pass. The Panama Canal is exploring the possibility of creating a new water reservoir, a decision that falls under the Executive’s jurisdiction.

The severe drought, resulting from the El Niño phenomenon and the prolonged dry season, has prompted drastic measures at the Panama Canal to address this unprecedented situation in 2023. Some measures include reducing daily transits until next year, reducing vessel draft, and adjusting the variable tariff charged for freshwater use, which will have economic implications in the fiscal year 2024, spanning from October 1 to September 30 of the next year.

One direct effect has been congestion at the canal entrance, with up to 160 vessels waiting, primarily bulk carriers, gas carriers, chemical tankers, among others. As of Friday, there were 75 vessels in line, 47 with reservations and 28 without, according to canal data, a significant trade route that typically moves between 500 to 510 million tons of cargo each year under normal circumstances.

The Panama Canal has gradually reduced the number of daily transits in 2023, reaching 31 vessels in November, with expectations of only 18 vessels crossing in February, according to forecasts. The canal may lose around $200 million in revenue in 2024 due to the reduced daily transits enforced because of the drought, as stated by its administrator, Ricaurte Vásquez, last August.

In September, the canal announced a roughly 50% reduction in the variable tariff for freshwater use due to scarce rainfall this year in Panama, a country with only two seasons, dry and rainy. Despite this and amid reduced daily transits and congestion at the canal entrance, some shipping companies have opted to explore alternative routes, even though they may be longer and more expensive, as reported by local media citing specialized sources.

Due to the El Niño phenomenon, the average accumulated rainfall in the canal’s hydrographic basin – covering approximately 350,000 square kilometers, in the heart of the route – for 2023 is 25.6% less than the average of the last 73 years, according to official information. “We are dealing with a water deficit issue this year.

Regarding rainfall, for the period from January 1 to December 5, and compared to the historical record from 1950 to the present (2023), it is, so far, the third driest year or drier in the last 74 years,” noted Guerra. The Canal has previously warned that Panama has experienced reduced rainfall for two decades. October of the previous year was the driest month on record, with 41% less rainfall than usual.

Consequently, the water level of Lake Gatun, the canal’s main source, has dropped to approximately 81 feet PLD (Precise Level Datum) compared to the typical 88 feet PLD in a “normal year,” an atypical situation in December, marking the beginning of Panama’s dry season, explained Guerra. The Panama Canal is exploring the possibility of creating a new water reservoir, a decision that falls under the Executive’s jurisdiction.