Panama Canal Eases Limits That Caused Global Shipping Bottleneck

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(Bloomberg) -- The Panama Canal is lifting restrictions that caused a global shipping bottleneck as water levels normalize after a severe drought.

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The Panama Canal Authority increased the draft in the waterway to a maximum 50 feet and will allow 36 vessels a day to transit after recent rains lifted water levels at an artificial lake that forms part of the canal system, administrator Ricaurte Vasquez told reporters Monday. The agency expects rains to continue through November, further lifting water levels, he said.

The canal handles about 3% of global maritime trade volumes under normal circumstances, and 46% of containers moving from Northeast Asia to the US East Coast. The channel is Panama’s biggest source of revenue, bringing in nearly $5 billion last year.

About 30 to 32 vessels are currently transiting the waterway, below pre-drought capacity. The canal restricted daily transits to as few as 24 at the height of the drought. Vasquez said it’ll take about five to six months for shippers to return in full. Rainfall is expected to lift Lake Gatun’s water levels to 88 feet by November from current levels of around 85.8 feet, he said.

Last year’s El Niño caused a significant drop in rainfall and forced the canal to implement daily transit restrictions for the first time in history. The authority even held auctions in which shippers could bid for transit slots. Some shippers, especially time-sensitive vessels carrying liquefied natural gas and liquefied petroleum gas, opted for alternative routes.

“Creativity was taken to its limit during this dry season,” Vasquez said.

Maximum Cargo

Recently, vessels have been arriving at the canal with larger cargo volumes, allowing the authority to cut water usage while keeping tonnage stable, Vasquez said. He said the authority will work with shippers to ensure ships arrive at the canal with the maximum cargo possible.

The agency may need to implement seasonal draft restrictions during the 2025 dry season, which is typically in the first half of the year, but will seek to avoid using daily transit restrictions, Vasquez said.

The canal is studying the possibility of opening up long-term reservation slots for more time-sensitive users such as LNG and LPG shippers to guarantee greater certainty and help vessels reach destinations without delay, Vasquez said. He said the authority will meet with LNG and LPG market participants in September to discuss the proposal.

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The authority expects another El Niño-driven drought within the next four years, Vasquez said. The weather phenomenon reduces rainfall over the Panama watershed and decreases water levels at Lake Gatun, the main source of water for the canal and a source of drinking water for about half of the country’s population. The canal isn’t expecting to have new infrastructure before the next major drought, he said.

The canal authority is studying building a dam on Rio Indio about 40 miles west of Panama City to boost its water supply. Canal authority employees are in talks with community members there who would have to be relocated — conversations that will likely take 18 to 24 months, Vasquez said. If the project moves forward, construction would require an additional four years and cost roughly $2 billion.

“The Panama Canal has been resilient,” Vasquez said. “We have to max out together with our customers.”

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