Panama Canal Traffic Delays Threaten Southern Ag Global Supply Chains

Sunghun Lim, Sandro Steinbach, and Xiting Zhuang

The Panama Canal, a linchpin of global maritime trade, faces its most severe drought in history, resulting in unprecedented restrictions on vessel transits. Figure 1 shows that there are currently hundreds of cargo vessels and tankers stuck in front of the channel, with average wait times exceeding three weeks. This crisis is a major engineering challenge and a stark reminder of how vulnerable the global trade system is to weather shifts. We delve into the root causes of this drought, assess the extent of the disruptions it has caused so far, examine its impact on U.S. Southern agricultural exports, and provide an outlook for 2024.

Figure 1: Hundreds of cargo vessels and tankers locked in traffic jam at the Panama Canal.

Note. Vessel-tracking data obtained from MarineTraffic (2024). Green dots indicate bulk cargo carriers and red dots oil and gas tankers waiting to cross the Panama Canal. Data is current as of January 18, 2024. Background data show the density of vessel activity per route in 2022.

At the heart of the Panama Canal drought lies the El Niño weather phenomenon, exacerbated by the broader issue of climate change. El Niño induces substantial weather anomalies, including reduced rainfall in Central America, directly affecting the water levels crucial for the canal’s operation. Climate change amplifies these effects further, resulting in more frequent and severe drought conditions. Under normal circumstances, the Panama Canal can accommodate about 35 ship crossings daily. However, the drought has caused a more than 30 percent reduction in vessel transits, limiting daily crossings to around 24 ships, as shown in Figure 2. This reduction is not just a logistical challenge; it represents a substantial economic setback for Panama. Canal administrators anticipate a staggering loss of USD 500 million to USD 700 million in revenue for fiscal year 2024. The first quarter of fiscal year 2024 alone witnessed a 20 percent decrease in cargo volume, leading to 791 fewer ships than the previous year.

Figure 2: Daily vessel transit through the Panama Canal plummets by 30 percent.

Note. Daily average Panama Canal transits by vessel type obtained from the Panama Canal Authority (2024). Data is current as of January 18, 2024. Panamax and Neopanamax refer to vessel size limits at the Panama Canal. Panamax dimensions are set by the original locks, allowing vessels up to 110 feet in width, 1,050 feet in length, and 41.2 feet in depth. Neopanamax, on the other hand, is defined by the newer locks, accommodating ships up to 180 feet in width, 1,401 feet in length, and 60 feet in depth.

The United States heavily relies on the Panama Canal for its agricultural exports, especially to Asian markets, facing profound repercussions due to this crisis. Figure 3 shows that grains and oilseeds are the major transit goods in volume. Last year, about 26 percent of U.S. soybean and 17 percent of corn exports passed through the Panama Canal. Due to the disruptions, U.S. agricultural exporters grapple with rising shipping costs and extended transit times. These additional expenses will translate into higher prices for agricultural products in Asian markets. For some perishable goods, shipping delays can impact market value due to compromised quality.

Figure 3: Panama Canal handles over 26 percent of U.S. soybean and 17 percent of corn exports.

Note. Agricultural transit volume data for fiscal years 2021 to 2023 come from Panama Canal Authority (2024). The fiscal year runs from October 1 to September 30. The figure shows the major agricultural exports by tonnage for the shipments on the Atlantic to Pacific route.

Among the hardest-hit are bulk carriers transporting agricultural commodities. Rerouting these carriers to alternative routes, such as the Suez Canal, not only prolongs transit times but also escalates shipping costs. The ongoing disruptions pose a tangible threat to the competitive positioning of U.S. agricultural exports in crucial Asian markets. Making matters worse, the sustained terrorist attacks by the Houthi further complicate trade between Asia and the Southern U.S., limiting the volume of goods traversing the Red Sea by about 65 percent. This crisis primarily affects commodities like soybeans and corn. The delays and increased logistical costs have the potential to alter trading dynamics, prompting Asian importers to explore alternative sourcing strategies.

The future trajectory of the Panama Canal’s operational capacity in 2024 hinges mainly on environmental factors out of human control. While the impending rainy season might offer temporary relief, broader concerns surrounding climate change and the persistence of El Niño suggest the possibility of recurring droughts. In response, the Panama Canal Authority started to actively explore different water management techniques and new water sources to sustain both the canal’s functionality and Panama’s domestic needs.

Looking into the future, U.S. agricultural exporters may need to reassess their logistical strategies, including exploring alternative shipping routes, adjusting shipping schedules, and potentially diversifying export markets to mitigate risks associated with the canal’s reduced capacity. The situation unfolding in the Panama Canal shows the vulnerability of global trade to environmental changes. It underscores the necessity for resilience and adaptability in international trade practices in the face of climatic challenges. This challenge calls for collaboration among global trade stakeholders to alleviate the impacts of these disruptions and strengthen the resilience of the international trading system.

The drought in the Panama Canal presents a complex issue with far-reaching implications, particularly for U.S. agricultural exporters. It illustrates the interchange between environmental factors and global economic activities. As U.S. agricultural exporters must grapple with the new realities of climate change, the situation in the Panama Canal offers insights into adapting trade practices in an increasingly dynamic global market environment. Concerted efforts across the supply chain are needed to mitigate the impacts of such disruptions and develop a more resilient global trading framework.