Slots available for ships to transit the Panama Canal have been slashed by the operator, the Panama Canal Authority, and will soon be reduced even further.
With immediate effect (as of 03 November 2023) booking slot numbers will be cut to 25 slots, and a series of progressive cuts will be made so that slots will be cut to 22 in December, 20 in January, and from February – and until further notice – the number of slots will be reduced to 18 slots a day.
The Canal’s administrators have been cutting the numbers of ship transits for some months because of the worsening situation in Panama.
Freshwater crisis
Available slot numbers are based on the present and projected levels of water in Gatun Lake – an artificial freshwater lake created by damming the Chagres River and which forms approximately 28km-29km (assuming eastward transit of Isla Centinela) of the roughly 64km of the Panama Canal (as measured from the Atlantic Bridge in the north to Bridge of the Americas in the South).
In an Advisory to Shipping (of 30 October 2023), the Authority noted that the water level in Gatun Lake has “continued to decline to unprecedented levels for this time of year”. Adding that there has been a lack of rainfall in the Canal watershed, the Authority noted October 2023 has had the lowest rainfall on record since 1950 (41% below) and that 2023 ranks as the second driest year since 1950. Rainfall projects are forecast to be 38% less for the rest of the year.
Low volumes of rainfall in the region have been attributed to the ongoing “El Niño” weather phenomenon, and which, combined with “La Niña”, make up the Southern Oscillation cycle. This cycle has dramatic effects on global weather. The “El Niño” in the Americas has been prolonged for some time and has resulted in the delayed onset of rains and has increased evaporation in lakes such as Gatun and Alhajuela.
The Canal Authority notes that the Gatun reservoir receives a daily inflow of about seven cubic hectometres and has combined daily outflows and evaporation of about ten cubic hectometres resulting in a daily deficit of three cubic hectometres.
“To offer some perspective, three cubic hectometres is equal to the water volume in 1,200 Olympic-sized swimming pools. This daily shortfall has caused the Gatun reservoir’s level to drop seven feet below its anticipated level for this time of year, marking the lowest level ever recorded during a rainy season in the reservoir’s history”.
Weather worries
The Southern Oscillation is too complex to explain in detail here, but, in a superficial summary, air pressure, prevailing winds and underwater currents combine to create a change in sea temperatures by a few degrees. When the temperatures heat up in the Eastern Pacific, there is an “El Niño”, which causes more rainfall in the Eastern and Central Pacific while the Western Pacific (i.e. Australia) becomes dry. When temperatures cool in the Eastern Pacific, there is a “La Niña”, which causes cooler weather and more rainfall in the Western Pacific and dryer weather in the Eastern Pacific.
According to the Australian Bureau of Meterology, Australia is currently in an “El Niño”, which formed in March 2023. Prior to that, and going back to about July 2019, Australia’s climate was either in a neutral or “La Niña” state. Australia is forecast to remain in an “El Niño” state until the southern hemisphere’s autumn 2024.
The “El Niño” in the Americas has been prolonged for some time and has resulted in the delayed onset of rains and has increased evaporation in lakes such as Gatun and Alhajuela.
Trade effects and Australia
Initial direct effects on Australia’s trade will be somewhat limited.
Most of our bulk dry and wet trade (coal, iron ore, grain, LNG, other minerals) is with north east Asia and south east Asia. Our container trade (both imports and exports) is focused on Asia too. Then the next highest region by volume is the Euro-Med. Trade with Europe typically is routed via the Suez Canal (or around the coast of South Africa if Suez is closed for any reason or if it is more economic to go the longer route). Our next biggest trade partner by box volume is New Zealand, which is then followed by southern Asia. Australia has comparatively small volumes of trade on the other side of the Panama Canal (Caribbean region) and trade with North America can (and does) occur with the ports on the western coast such as Los Angeles and Long Beach.
Even trade with the east coast of South America (and there is not a lot of trade between Australia and the eastern parts of South America) could be routed west via the southern portions of the Indian Ocean, past the southern coasts of Africa, then west across the South Atlantic Ocean.
That said, there is trade through the Panama Canal involving Oceania.
Route / Cargo volumes (fiscal year 2022)
Oceania to..
East Coast United States: 1,629,276 (1,655,421 metric tonnes)
Europe: 363,094 (3,68,921 tonnes)
East Coast South America: 109,106 (110,857 tonnes)
East Coast Central America: 64,257 (65,289 tonnes)
East Coast Canada: 249,901 (253,911 tonnes)
West Indies: 65,048 (66,092 tonnes)
Total: 2,480,683 (2,520,491 tonnes)
Source: Panama Canal Authority
The Panama Canal Authority provides cargo weights in long tons. A “long ton” is a measurement based on 16 ounces i.e. 2,240 lbs avoirdupois is one long ton, which, in turn, equals 1,016kg.
There could be a variety of more indirect effects owing to longer travel distances.
Writing in 1886, French diplomat Ferdinand de Lesseps (who built the Suez Canal) wrote that the distance between Sydney and London by Cape Horn (southern tip of South America) was 16,400 miles (the exact choice of route will result in a varying distance; modern measuring techniques may result in a shorter distance) and the distance via the Panama Canal was 10,900, a saving of 5,550 miles.
The container trade appears to have been relatively unaffected so far, owing to the need for fixed schedules causing box-ship operators to tend to have reserved bookings.
Trade media speculate that containerships are likely to book most of the available slots. However, that means other ship types will be forced to travel much longer distances on alternative routes, such as via the Suez Canal or via Cape Horn (the southern tip of South America). So, for instance, the freight rates in the Very Large Gas Carrier market have sky-rocketed, particularly in the liquefied petroleum gas tanker market. These vessels use the Panama Canal on the US-Asia trades. Consensus is also building / has also built that large dry bulk vessels will also head around Cape Horn.
