Panama Canal faces challenges as LNG, grain shipments decline

The Panama Canal is grappling with reduced traffic and increased costs as it seeks to recover from a severe drought that affected its operations last year.

The canal, a crucial conduit for global trade, was forced to limit crossings in July 2023 due to insufficient rainfall, impacting its ability to handle large volumes of traffic, Caliber.Az reports per foreign media.

While rainfall has improved, helping the canal approach near capacity by September, the number of LNG and dry bulk shipments has dropped significantly.

In July, only 13 LNG ships transited the canal, a stark decline from the previous year, while dry bulk shipments fell by 35 percent. Although other types of vessels, such as container ships, have continued to use the canal, the overall traffic remains below pre-drought levels.

The reduced number of available slots has driven up transit costs, with some shipowners paying as much as $4 million to bypass queues.

The drought, exacerbated by El Niño and rising temperatures, has highlighted the canal's vulnerability to climate change. Despite efforts to adapt, including the introduction of a reservation system and increased prices, the canal has become less attractive for lower-value, time-insensitive cargoes.

Panama Canal Authority director Ricaurte Vásquez emphasized the canal’s commitment to reliability and stated that officials are reviewing pricing strategies to balance revenue with maintaining global relevance.

Meanwhile, LNG shipping patterns are shifting, with more shipments going to Europe instead of Asia, and some traders opting for longer alternative routes around Africa.

Looking ahead, the canal faces ongoing challenges due to climate change, which is expected to increase the frequency of droughts and strain its infrastructure.

The new Panamanian government is pursuing a long-term solution, including the construction of the Río Indio reservoir to secure water supplies for the canal and local consumption. However, the project will face hurdles amid domestic political unrest and potential future droughts.