Climate Change and Canal Crisis

Written by Jose Aguilar | February 18, 2024

The Houthis in Yemen are disrupting global trade through the Suez Canal due to geopolitical factors, which caused ships to divert around the African continent. Global trade is disrupted on this continent, but for different reasons. In the Americas, climate change and droughts are reducing maritime traffic through the Panama Canal by 36%, which is significant since it is one of the key global trade routes. According to Morgan & Morgan, the disruptions in the Panama Canal are due to several reasons, including environmental factors and mismanagement from the state-run water company IDAAN. 

The rainfall deficit in 2023 caused the sources of water of the Panama Canal, the Lake Gatun, to have low water levels that are unable to meet the amount of water needed for the waterway to operate normally. Lake Gatun also supplies drinking water to major cities in Panama. In normal conditions, 36 ships can transit daily through the Panama Canal, but now it has gone down to 24, and it was further reduced to 22 ships recently. This caused tankers to pile up which has caused near misses, which has the potential to aggravate the situation. Shipping companies can wait in line or pay up to $4 million dollars to skip the line.The Panamanian government is evaluating solutions to this problem, one of them cost $2.9 billion and the other costs $900 million. There are technical and legal limitations to both solutions that can connect additional water supply to the Panama Canal. The disruptions in the Panama Canal are significant since they impact global supply chains, which complicates the current state of global trade. Increased costs of maritime traffic will have an effect on inflation and the consumer will pay the price. Experts state that the water level and rainfall will continue at a deficit this year and next year, which exemplifies the critical state of global supply chains.