Who left the tap on?

Panama canal's water shortages and shipping implications.

The economic ramifications of decreased vessel traffic through the Panama Canal, attributed to water shortages, are proving to be significant challenges for Panama and the global shipping sector. The reduction in canal activity has prompted a thorough exploration of alternative transit routes, which could potentially disrupt global supply chains and lead to higher commodity prices. In response, Panama has implemented measures such as tariff adjustments and water conservation initiatives to address the crisis. 

Despite the decline in vessel traffic, the Panama Canal is projecting “a slight 2% increase in revenues by 2024 due to the implementation of a new calculation and tolling system,” reported Nicolas Vukelja, former president of the Panama Maritime Chamber of Commerce. To counteract the impact of reduced traffic, the government has implemented tariff modifications for vessel transits, “especially for vessels urgently needing to cross, which have exceeded USD 1.5 million compared to the usual charge for vessels, which averages USD 500,000.”  

Additionally, a new tolling mechanism has been introduced to stabilise revenue streams. “As immediate action, the Panama Canal Authority (“ACP”) has implemented several measures including the use of water recycling basins, cross-filling, tandem lockages and elimination of hydraulic assistance in the Panamax locks, among others,” a former vice-president of communications of the Canal Authority. 

“As immediate action, the Panama Canal Authority has implemented several measures including the use of water recycling basins, cross-filling, tandem lockages and elimination of hydraulic assistance in the Panamax locks, among others.”

Former vice-president of communications of the Canal Authority, Panama

The worsening water crisis poses tangible risks to Panama’s economy and the global shipping community. Further declines in canal traffic may prompt shipping companies to seek alternative routes, such as the Suez Canal or circumnavigating Africa, potentially disrupting supply chains and causing fluctuations in commodity prices.  

Although, “for now, local economists believe that the magnitude of the economic impact of the Panama Canal’s limitations has not had a major effect on consumer prices.” Mr. Vukelja highlighted, “Shipping lines are working together to make the most of the constraints imposed by the scarcity of water in the canal, which is vital to its operation.” 

Panama is actively addressing the water crisis through various measures aimed at ensuring a more reliable water supply. “The ACP has approved an USD 8.5 billion investment plan over the next six years (2025-2030), which will address the water needs of the Canal and the metropolitan region for the foreseeable future,” remarked the Canal Authority former vice-president of communications.  

These efforts include water conservation campaigns and infrastructure enhancements led by the Panama Canal Authority, including the construction of a versatile reservoir in the Rio Indio region. “The ACP has designed a budget for 2024, approved by the Cabinet Council and endorsed by the Legislative Assembly, of USD 4.776 billion, including the impact of the current drought on traffic volume,” reported the former vice-president of communications. However, the success of these initiatives depends on robust government support and long-term planning to improve water management capabilities and enhance infrastructure resilience.  

“The ACP has designed a budget for 2024, approved by the Cabinet Council and endorsed by the Legislative Assembly, of USD 4.776 billion.”

Former vice-president of communications of the Canal Authority, Panama

The Canal’s current revenues and “direct contributions to the Panamanian treasury were USD 2,544.6 million in 2023 and USD 2,470.8 million in 2024,” informed the former vice-president. In response to the constrained Canal conditions, the shipping industry is adjusting its logistics strategies. Some companies are exploring alternative transportation methods or routes, such as storing cargo on one side of the canal and using train or truck transport for transit. 

“A major impact will be mitigated by the increased use of the dry canal or multimodal system parallel to the Canal.” The former vice-president continued, “This system, some 80 kilometres long, includes the trans-isthmian railway operated by the US Panama Canal Railway Corp (“PCRC) and the Panama-Colón highway.” However, the sustainability of these alternatives remains uncertain and may lead to inflationary pressures over time. 

Addressing the water crisis in the Panama Canal requires concerted efforts from both the government and the shipping industry. As the former president of the Panama Maritime Chamber of Commerce reminded, “The departure of revenues from the mining company First Quantum, the incoming government will have to take new actions to counteract possible decreases in canal contributions.” 

Long-term investments in infrastructure and water management capabilities are key to ensure the Canal’s resilience and maintain its crucial role in global trade. Proactive measures to diversify transportation routes and enhance logistics strategies will help mitigate the impact of future disruptions on global supply chains. Here’s hoping Panama can steer its way through this dry spell.

Important Notice
While the information in this article has been prepared in good faith, no representation, warranty, assurance or undertaking (express or implied) is or will be made, and no responsibility or liability is or will be accepted by Deheza Limited or by its officers, employees or agents in relation to the adequacy, accuracy, completeness or reasonableness of this article, or of any other information (whether written or oral), notice or document supplied or otherwise made available in connection with this article. All and any such responsibility and liability is expressly disclaimed.
This article has been delivered to interested parties for information only. Deheza Limited gives no undertaking to provide the recipient with access to any additional information or to update this article or any additional information, or to correct any inaccuracies in it which may become apparent.

Most recent in Transport

Just the two of us, we can make it if we try?

Musk, Milei and Argentina's economic future.

Challenges in Colombian port logistics

Roadblocks, losses and solutions.

Pedal to the metal

Chinese automotive companies seek to expand their footprint in Mexico.

Electrifying public transport

Latin America's electric bus fleet is growing rapidly, led by Chile and Colombia.

Car leasing

Car leasing booms as new car sales struggle to recover to pre-pandemic levels in Mexico.

Flying together

Avianca and Viva appeal to Colombian regulator after merger denied.

Pilot power

A global shortage puts Latin American pilots in high demand.

The shipping news

Soaring rates, export recalibration.

Island hopping

The Caribbean is struggling to boost inter-regional travel.

Long-haul ambitions

LatAm’s sustainable aviation fuel transition.