U.S. Trade Dominates Panama Canal Traffic. ‘Severe' Drought Is Threatening the Long-Term Future of the Century-Old Shipping Route

The Panama Canal, which is the premier trade gateway for U.S. shippers to the Gulf Coast and East Coast, will restrict large ships starting Sunday due to low water levels. This is because of the ongoing drought. Ricaurte Vasquez Morales is administrator of the Panama Canal Administrator. "When you add up all the containers and commodities to the U.S., it represents approximately 73% of our total traffic." Panama Canal is a popular choice for East Coast trade due to its speed. Shipping ocean cargo via the Suez Canal from Shenzhen in China to Miami, Florida takes 41 days. U.S. shippers, as well as industry analysts, are worried about the possibility of additional surcharges for freshwater due to a drop in water levels. The fees have been increasing. The canal will impose a fixed fee of $10,000 per transit in 2020 along with a levy on a percentage carrying capacity. Waterway is the fastest, least expensive way to transport grain and other agricultural products from New Orleans to China. Natural gas is one of the most common energy commodities that are transported through the Panama Canal by the United States. LPG carriers are ocean vessels that transport liquified gas, liquefied natural gas and compressed gas in bulk. They account for a little more than one quarter (26%) canal transit. LNG vessels are not affected by the new requirements. However, congestion in the canal caused by lower water levels, increased small vessels, and an increase in the number of vessels, has led LNG Allies (the U.S. trade group for the industry) to express concern about future congestion, rising costs, as well as the need to find alternate trade routes which would lengthen voyages.

He said that a plan of action was being prepared. Vasquez stated that he believes it's likely that we will offer a discount to our clients. On April 21, 2023, view of boats stranded at Alhajuela Lake, during the summer drought in Colon Province, 50 km north-east of Panama City. Alhajuela Lake is one of two main lakes that supply water to the Panama Canal locks and is currently at its lowest level in recent years.

Any vessel that gets stuck will block the flow and prevent other vessels from passing through. Vasquez explained that the first water surcharge had a different purpose, but that now there is such a severe [drought] we might have to reconsider that option as well. "So, this is something we're going to discuss in order to put it into effect for the next fiscal year on October 1.

In response to the measures of the Canal, at least four ocean carriers have imposed container fees ranging between $300 and 500 per box as of June 1. It will be more expensive. Alan Baer CEO of OL USA said that the lower water levels in the Panama Canal continue to affect pricing of cargo from Asia to USEC. He said that while some surcharges are decreasing, the weight restrictions of some carriers will not go away. Stephen Lamar said that the American Apparel & Footwear Association's President and CEO, Stephen Lamar, believes that "Panama Canal Surcharges and Vessel Restrictions will likely result in higher prices of clothing and shoes for U.S. customers this holiday season." Vasquez is an economist and a former CEO of GE Central America and Caribbean. He understands both short-term and long-term issues. Vasquez stated that "we believe climate change will impose significant increases in transportation costs and costs of production." The Panama Canal Authority has announced that it will invite bidders in September 2020 to submit proposals for the design and construction of a new water-management system. PCA and U.S. Army Corp of Engineers are still reviewing the plans for cost and design. PCA budgeted for $2 billion to be spent on the project. 250 bidders expressed an interest in it. The canal authority announced that it would present a more detailed plan in June 2021. No work has been done on a new system of water management.