Global Supply Chains: Panama Canal Bottleneck


Global warming also has economic consequences. It rains less in Central America and as a result the water level in the Panama Canal is falling. Will we see that in our wallets anytime soon?

The Panama Canal connects the Atlantic Ocean with the Pacific. The building is of great importance for shipping. Before there was the Canal, a ship had to take the much further and much more dangerous route around the southern tip of the Americas.

The sea at stormy Cape Horn has been a veritable ship graveyard for centuries. Thousands of sailors died here, countless ships were lost. Passage through the Channel in Central America shortened the route to the Pacific by more than 13,000 kilometers – a huge saving in money and time.

But now residents, conservationists and meteorologists are seeing a decline as a result of climate change the amount of precipitation in Central America. As millions of liters of freshwater from the region's rainfall flow into the sea with every lock, the water level in the canal drops, making it increasingly difficult for ships with deep drafts to pass.

The Panama Canal – one of the most amazing hydraulic structures in the world – struggles with low tide.

First consequences

The Panama Canal uses so much freshwater because ships have to go up and down 80 feet in a dozen locks. According to the consulting firm Everstream, which monitors and evaluates supply chains on behalf of international corporations, around 200 million liters of water are needed for every ship passage through the canal.

The Panama Canal Authority, which is responsible for the operation of the canal, has issued strict draught restrictions several times in recent months. It was initially 14 meters, but since Wednesday (May 24) it has only been 13.5 meters. Worse, however, the Everstream analysts do not expect the situation to ease, either in the short term or for the rest of the spring. The consequences for shipping would intensify ;                        &nbsp ;                        &nbsp < p>The ARD Tagesschau reported on the same day that Hapag-Lloyd and other shipping companies want to load fewer containers in order to reduce the draft of their ships. They then want to compensate for the loss of income with surcharges of around 500 euros per box. According to the same source, the President of the Wholesale and Foreign Trade Association, Hans-Fabian Kruse, warned of a massive disruption in supply chains and longer transport times – this will also affect prices.

No reason to panic?                         n eg;    

Vincent Stamer takes a more relaxed view of this: “For the time being, it won't really be critical for the supply chains,” the economist from the Kiel Institute for the World Economy told DW. Unlike in 2021, when the container ship Ever Given crashed in the Suez Canal, such consequences are not to be expected now: “The Panama Canal is not as important for the global economy as the Suez Canal.”

In addition, world trade, around 90 percent of which is transacted across the world's oceans, has demonstrated its relatively pronounced resilience in recent years: “After the multiple burdens caused by ship congestion, port closures and lockdowns in recent years, the Supply chains recovered significantly.” ;    

The consequences of climate change

It is not the first time that the canal authority has had problems with a minor water shortage. The year 2019 was already one of the driest years in history, the canal administration announced in January 2020 and stated at the time that climate change was “sufficiently proven at the Panama Canal.”

In Europe, too, low water levels have caused headaches for the authorities in recent years. For example, droughts had allowed the Rhine, which is important for inland shipping, to dry up, which caused the prices for petrol and heating oil to rise and impeded deliveries to factories. Due to the lack of snow in the Alps, the problem of low Rhine levels is looming again this year.

Solutions sought

Water navigation authorities are considering suitable countermeasures for the Rhine. This includes further dredging of the fairways. Another, much more expensive solution would be to build barrages. This could be used to dam the river in sections to raise the level.

Other solutions are being considered for the Panama Canal. This includes water-saving sluices that collect the precious freshwater in extra basins so that it can be reused. To this end, possibilities are being examined to develop other sources in the catchment area of ​​the canal, such as underground sources. The construction of reservoirs and seawater desalination plants is also being considered.

A container ship enters the Miraflores lock – it forms the entrance to the canal on the Pacific side

Many detours are conceivable

If these measures came too late and passage through the canal became uneconomical, would Europe be threatened with something similar to the Suez Canal closure? “No, definitely not”, Vincent Stamer is certain: “Only two percent of German seaborne trade goes to the Pacific coast of the American continents. The sea connections to the east coast of the USA and trade with neighboring European countries on the road play a role much greater role.”

Until then, the Kiel economist sees other ways of reacting to the water shortage in Central America: “Reducing the cargo is certainly the easiest way for shipping companies. Also the use of smaller ships is possible.”

Stamer also sees large-scale and, at first glance, exotic-looking alternatives: “The traffic route from Asia through the Panama Canal to the US east coast can be partially rerouted to the Suez Canal route. On the route between Alternatives are less established in Europe and the US west coast. However, a combination of the above measures with a greater use of air transport or land transport through the USA is conceivable.”