September 20, 2023–Drought conditions are fast becoming a matter of concern to North America’s supply chain industry, hindering ship transits through the Panama Canal, with the Mississippi River soon to follow suit, experts say.
“Drought is the enemy of the Panama Canal, and the drought this year across areas of Panama has been quite severe,” said Jon Davis, Chief Meteorologist at Everstream Analytics. In fact, on a recent podcast, he said the current drought conditions are the driest in Panama since the year 2000.
Ryan Seah, Intelligence Solutions Analyst with Everstream, spelled out the consequences for shippers as canal officials seek to conserve water by restricting the number of vessels allowed to pass through.
“Daily transit limits will be kept at 32 vessels instead of the usual 36,” Seah said, explaining that the restriction allows the Panama Canal Authority to save about 220 million gallons of water each day since each ship requires 55 million gallons to pass through the waterway.
According to Seah, all industries are feeling the effects of the restrictions imposed by the PCA, but he said some industries are feeling considerably greater impacts than others.
“What I mean by this is that the PCA has placed a priority status for container box ships over every other type of vessel going through the canal,” he said.
As a result, he said, industries that rely on container ships to transport cargo, including automotive, electronics and retail, are experiencing fewer disruptions to their supply chains.
On the other hand, Seah said, industries such as the energy, petroleum, raw materials, chemicals and agricultural industries are experiencing “the most disruptions” due to their lower rank on the list of priorities.
The problems for agriculture shippers could be worsened by drought conditions developing along the Mississippi and its tributaries, now at some of the lowest levels that we’ve seen in the past 10 or 15 years.
“The big problem is we expect the river level in the Mississippi River Basin and the Mississippi itself to drop into September,” said Davis, “and that does impact the Panama Canal.”
He noted that the impact could be felt in the agriculture industry in particular since many U.S. agricultural exports move southbound along the Mississippi River to New Orleans for ships aiming to transit the Panama Canal enroute to markets in Asia.
The Everstream analysts gave little hope of a reprieve in the situation any time soon, pointing out that an El Nino weather system already is developing in the Pacific Ocean which will likely worsen Panama’s current drought conditions.
“Overall, the developing El Nino event in the Pacific Ocean, the warm waters across the Equatorial Pacific, that is an overall situation that detracts rainfall from Panama,” Davis said.
“So, we do not see any resolution or improvement in the situation in Panama in the short-term going into September, and also in the long term because of the increasing El Nino event.”
The Panama Canal is not a channel cut through the Central American nation at sea level. Instead, it is a waterway that lifts ships above sea level through a series of locks to a central lake before lowering them through a second set of locks at the other end.
Lake Gatun, essentially the reservoir which stores and releases the water needed to raise and lower the ships through the Canal locks, is normally topped up by annual rainfalls in Panama, considered one of the wettest countries on earth.
But this year, Panama has seen less rain than at any time in nearly six decades, according to Davis.
“So, this overall drought situation and the impact on Lake Gatun is historic in nature,” he said, and – at least until the next rains arrive – that spells trouble for shippers through the Panama Canal.
Rainfall in Panama is the lowest in years.
Photo Credit: Everstream Analytics
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