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The Panama Canal Runs Low on Water: What it Means for Trade?

In 2018, an average of 40 ships a day made their way through the Panama Canal, a shortcut between the Pacific and Atlantic oceans. Since it’s opening in 1914, it is a highly trafficked shortcut in the transportation of the world’s goods. However, the Panama Canal is running out of water, presenting big changes for the trade community.

Where is the water going?

2019 was recorded as the fifth driest year in the last 70 years, which caused a limit on the amount of cargo that ships could carry. Rainfall was 20% below the historic average, leading to lower water levels and restricting the cargo that was transported. The lower water levels are due to both the decrease in rainfall as well as a growing population, causing a rising demand for water, an increase in agriculture that degrades natural ecosystems, and an expansion of the canal in 2016.

To understand more behind the reasons and concerns regarding the shortage of water in the Panama Canal, visit here.

How does this affect the Trade Community?

The Panama Canal first opened in 1914 with the goal of making the United States the most powerful nation on earth while simultaneously creating an image of selflessness. Then, in 2016, the Panama Canal expanded, doubling its capacity while allowing larger ships to pass through the waters. In anticipation, every major port in the U.S. expanded with dredging, making way for the larger ships, creating more container space, and increasing highway capabilities from the ports.

The Canal has opened up opportunities for goods to be transported from one part of the world to another. It is the quickest and most cost-effective means by sea to transport goods from Asia to the U.S. The expansion in 2016 not only doubled the capacity but also shortened the time for the delivery of goods while reducing the overall costs of transporting them. The alternative route, without this shortcut, is an 8,000 nautical mile trip around South America.

However, the lower water levels mean that these large cargo ships are having to unload additional cargo, shipping much of it by land in order to make it through the canal. The ripple effect of the lowering water levels leads to higher prices and a longer wait for getting the desired goods into the hands of the consumer. This should be on the watchlist for all transporters in the coming years.

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