Panama’s Water Woes

By Carly Fields

From Issue 1, 2024 of Breakbulk Magazine: Amid drought-induced water shortages that have severely curtailed daily transits through the Panama Canal, we find out from leading project cargo handlers how they are preparing to mitigate the risk of further disruption as we move into 2024.


The Panama Canal, a critical artery of global breakbulk and project cargo trade, faced an unprecedented challenge in 2023 – a severe water shortage. Historically high temperatures in the Atlantic Ocean, compounded by the El Niño phenomenon affecting the Pacific Ocean, delayed the rainy season in Panama, leading to a significant decrease in freshwater levels crucial for the Canal’s operation. October 2023 was the driest on record for the Canal, with 41 percent less rainfall than usual.

The impact of the drought has been profound. On Nov. 1, 1965, the water level in the Gatun Lake was 85.68 feet; on the same date last year it was 79.71 feet. 

In November 2023, the Panama Canal Authority, or ACP, acknowledged the gravity of the situation, highlighting the impact of climate-related factors on the canal’s water reservoirs. To address these challenges, the authority implemented a series of measures aimed at conserving water and optimizing transit efficiency.

One notable measure was the implementation of cross-filling in the panamax locks. This involved reusing water from one lock chamber for the other, resulting in savings equivalent to the average consumption of five daily transits. Additionally, simultaneous lockages were being performed when possible, allowing two ships to transit at the same time, occupying the same chamber.

However, these tweaks could only go so far. Rather than the average of 39 transits per day recorded in fiscal year 2022, in November transits were restricted to 31 vessels per day, with nine through the neo-panamax locks and 22 through the panamax locks.

A shipping notice published at the end of October added that from Dec. 1-31, 2023, the number of booking slots would be further reduced to 22. An ACP advisory released in mid-December confirmed that from Jan. 16, 2024, the number of daily transits would rise to 24 until further notice.


Limitations on Locks

Henrik Hansen, general manager for the Americas at AAL Shipping, explained the practical implications of the Panama Canal’s water shortage for breakbulk movers. AAL Shipping, reacting to the limitations on lock options due to the reduced water levels, adapted its strategy late last year and switched to prebooking Panama Canal transit slots 60 days in advance, a considerable extension compared with previous practices.

“What that has meant is that for any inbound voyages fronthaul from Asia, we will book the slot as the sailing starts in Southeast Asia,” Hansen said. “We have also had to build in a certain number of days as a buffer in case of delays on route through the Asian ports. Previously, we would have booked two or three weeks out.”

Hansen emphasized the need for smarter and more contingency-driven operations, especially for smaller tonnage vessels. With the continuing problems with Canal transits, AAL has shifted its focus to the U.S. Gulf, becoming more conservative in pursuing opportunities on the U.S. West Coast. The impact on heavy-lift fixtures has been mitigated, but volume cargo not involving heavy pieces is reviewed on a case-by-case basis to assess the associated risks.

“In many cases in the projects we are involved in for discharge to U.S. West Coast or North Pacific ports, the projects are not designated for the coastline, but are typically inland. Therefore Houston and New Orleans still give an opportunity to cater to those inland destinations,” Hansen said.

The Panama Canal Authority’s decision to limit transits further in 2024 is concerning, though.

“That’s a significant drop from what we have seen in the past. Moving forward, this is something we have to take into consideration. If this is going to be the new normal long term, we have to take into consideration how best to mitigate any negative impact for our customers and overall voyage performance,” he said.

Capt. Cesar Indaburu, the country managing director for Sea Cargo in Panama, agreed that booking well in advance is the key to avoiding delays. As a cargo agent, Sea Cargo has not experienced direct operational impacts so far. He foresees the current situation persisting until the next rainy season in 2024 when water levels are expected to return to normal.


Mitigating Impacts

In a business advisory to customers, vehicle carrier Wallenius Wilhelmsen said it was working closely with the ACP to monitor and respond to the conditions, ensuring the continuation of service. “Our team is proactively working to mitigate potential impacts on our services, such as securing earlier canal crossing slots, which are currently scarce due to the circumstances,” said a customer note from Nov. 10.

Wallenius Wilhelmsen also referenced protests and road blockades that have hit operations in Panama and Colon, stressing that its canal and ports operations had not been significantly affected as of mid- November. “We remain vigilant and are prepared to respond to any escalation in these activities, which could disrupt crew movements and create logistical challenges. For the safety and efficiency of our operations, our team has transitioned to remote work and is fully accessible through mobile and email communications,” it said.

In a Dec. 1 note, UTC Overseas advised customers that BBC and UHL had both announced that they did not expect any of their vessels to transit the canal for the foreseeable future. It said BBC has cited unpredictable wait times and costly reservation and auction procedures, while UHL said the stoppage was based on their MPV fleets’ vessel type and size. BBC will reroute voyages via the Magellan Strait or the Cape of Good Hope, and UHL estimates resuming normal operations through the canal in May-June 2024.

“As conditions continue to evolve, UTC is closely monitoring the latest developments. We are committed to keeping you informed and your cargo moving, and are ready to advise on alternate routes or modalities to find the best solution for your needs,” UTC said.

Christopher Knuth, CEO of KTC Logistics/KTC Heavy Lift in Honduras, gave a Central America perspective. Initially, he said, the reduction in daily transits resulted in a two-week delay for in-transit shipments from Asia, impacting clients who were unprepared for such disruptions. “With the drought getting worse, and the constant delays on the arrival of containers, clients have to work on this and coordinate their shipments with enough time – or seek alternatives to avoid the canal,” he said.

As of Nov. 17, 2023, there were 131 vessels waiting to transit the Canal. Average queue time for non-booked vessels was 6.2 days, although at least 10 ships in the queue had been waiting for 10 days or longer. Clients are faced with the dilemma of accepting delays to maintain rates or exploring faster but more expensive options outside the canal route.

Knuth discussed alternatives to the canal, including use of ports in the Pacific such as Puerto Acajutla, El Salvador; Port Henecan, San Lorenzo, Honduras; and Port Corinto, Nicaragua. He cited a specific project where the shift from an Atlantic port to Puerto Henecan, San Lorenzo, on the Pacific side resulted in lost business due to differences in port draft and logistics.

Looking forward, Knuth suggested that Honduras invest in the infrastructure of Puerto Henecan, emphasizing its solid roads and the recently constructed “Canal Seco” (dry canal) that reduces transit times. He advocated for regional cooperation on alternative shipping options but acknowledged challenges like corruption and failed government projects have hindered progress.


Contracting Challenges

Hill Dickinson lawyers have advised those whose charterparties, contracts of affreightment and/or sales contracts are impacted, or who are currently negotiating future contracts that may be impacted, to carefully consider what this situation means for them and their counterparties and how it may be provided for within their associated contracts.

“It is important to identify the allocation of risk under the contract for any delays and associated costs. Shipping clauses dealing with delay, detention of the vessel and demurrage should be reviewed carefully, as should any force majeure, Stoppage of Canals and Waterways clauses or similar,” said the specialist maritime law firm.

In terms of sales contracts, it lists some considerations as: who is responsible for additional costs associated with the carriage; whether these costs can be passed up or down the contractual chain; what the demurrage provisions say; and whether time is of the essence in delivering the goods.

In response to the ongoing water challenges, the Panama Canal Authority has been working on a Water Program since 2020. This initiative aims to provide a long-term solution to the water scarcity issue, with a focus on ensuring a stable water supply for the Canal’s operation over the next 50 years.

However, for today, the water shortage at the Panama Canal presents a multifaceted challenge with far-reaching implications for global maritime trade. As the Canal navigates this crisis, stakeholders across the project cargo industry must adapt, innovate, and collaborate to mitigate the impact on operations, client satisfaction, and overall economic stability.

Proactive measures taken by the ACP, coupled with the adaptive strategies of breakbulk companies and logistics providers, offer a glimpse into the resilience of the industry in the face of environmental challenges. Looking ahead, sustained efforts, regional collaboration, and innovative solutions will be crucial to ensuring the continued smooth operation of this vital international waterway.


AAL Shipping will be exhibiting at Breakbulk Middle East 2024, taking place on 12-13 February at the Dubai World Trade Center.

TOP PHOTO: Car carrier waiting to pass through the canal. CREDIT: Panama Canal Authority.