Serious congestion at the artery of global shipping, the Panama Canal, with 124 cargo ships blocked, resulting in queue skipping fees of up to 30 million yuan What information is worth paying attention to?

The Panama Canal and its Challenges and Alternatives

The cause of the whole matter is actually not complicated, it is the “El Niño phenomenon,” or simply put, “global warming.”

Unlike most canals in the world, the Panama Canal is a “lock-type canal,” which means that the water level needs to be raised or lowered using locks in order for ships to navigate on the canal located between the central mountains of Panama. The primary source of fresh water for these locks is the nearby Gatun Lake.

At present, due to the increasingly severe global El Niño phenomenon, the amount of fresh water that Gatun Lake can provide has been decreasing year by year.

To cope with the current situation, the measures taken by the Panamanian government mainly include reducing the number of ships passing through the canal each day, lowering the draft of the ships (which would result in a decrease in carrying capacity), charging higher “tolls,” and even auctioning off “transit rights” at a high price, and so on.

This directly leads to a significant decrease in the capacity of the Panama Canal for passage, while the cost of passage continues to rise.

In order to deal with the increasingly difficult situation of passage through the Panama Canal, global trade companies related to the canal either have to pay higher tolls, take alternative routes, or simply wait.

From a long-term planning perspective, the El Niño phenomenon is actually an unavoidable trend, so allowing the passage cost of the Panama Canal to continue to rise is clearly not a long-term solution.

There are several options for global trade companies:

1. Optimize and transform the Panama Canal.

In fact, the Panamanian government has always been engaged in the maintenance and transformation of the canal.

For example, in 2016, the nine-year expansion project of the canal was completed. Container ships with a capacity of up to 14,000 TEUs can now pass through the Panama Canal. Before the expansion project, the canal could only handle container ships with a maximum capacity of 4,400 TEUs.

However, with global trade continuously growing and the trend of decreasing traffic through the Panama Canal due to climate reasons, in the long run, it is becoming increasingly difficult for the canal’s carrying capacity to meet everyone’s demands.

After all, due to the geographical constraints of the canal’s surroundings, it is difficult to achieve large-scale, unrestricted passage of ships regardless of how the canal is optimized.

2. Construct alternative routes, such as digging another larger canal or building a railway.

Firstly, regarding railways, Nicaragua, El Salvador, Honduras, and other countries are interested in building transoceanic railways to “relieve” the pressure on the Panama Canal. In essence, this is about competing for tolls from passing ships.

However, a railway is still a railway, and it can never replace the great advantages of shipping. In terms of transport volume and cost, it is simply incomparable to giant cargo ships.

Another alternative is the proposed Nicaragua Canal, which, if successfully constructed, would far exceed the capacity of the Panama Canal and could accommodate giant cargo ships with a displacement of over 200,000 tons.

Currently, ships passing through the Panama Canal usually have a payload of 65,000 to 80,000 tons, but due to the depth of the locks, the maximum payload is limited to 52,500 tons, and the remaining cargo has to be transported by other means.

However, the Nicaragua Canal, although it seems promising, has one drawback: it is extremely difficult to dig.

Firstly, Nicaragua has too many volcanoes, making it highly unsafe to build a canal here. Secondly, as everyone can imagine, digging a canal may be relatively easy, but balancing the interests behind it may be far more difficult than the canal itself…

In simple terms - Americans and Canadians cannot easily hand over their lifelines of trade to certain “other” countries. However, they themselves do not have the capability to dig this canal…

I won’t go into detail here, you can look up the information in your free time. In any case, it involves very complex international political games.

3. Search for alternative shipping routes.

For example, the Arctic route, which is a relatively feasible option in the context of global warming. However, large commercial ships still cannot navigate the Northwest Passage at present.

Usually, there are three main shipping routes from Europe to the Pacific: through the Suez Canal, the Panama Canal, or around the Cape of Good Hope in Africa. The distances of these three routes are 19,931 km, 26,186 km, and 22,356 km respectively. In contrast, the Northwest Passage is only about 14,000 km in total length.

Therefore, in terms of transportation costs and time, the Arctic route has the highest value.

In the current warming trend, the Northwest Passage may become an important trade route in the next few decades, and its importance may even exceed that of the Panama Canal.

Global Transportation Crisis and El Niño Event

According to data from the Panama Canal Authority, the Panama Canal currently provides about 180 sea routes, connecting approximately 170 countries and regions, reaching about 1,920 ports globally.

Currently, 124 cargo ships are stuck in the Panama Canal, waiting for passage. The apparent reasons for this serious situation are global warming and the El Niño phenomenon. They have resulted in significantly lower rainfall in Panama than in previous years, and the rainy season has been delayed.

The International Monetary Fund has pointed out that this is the most severe drought in 143 years. October of this year was the driest October in 73 years as recorded. Currently, the waiting time for ships to pass is 5 to 6 days.

According to the latest monitoring by the National Climate Center, a moderate-intensity El Niño event has already formed and will continue until the spring of next year. Influenced by this event, coupled with the background of global climate warming, the global average temperature in 2023 may surpass the record of the warmest year in 2016.

After entering the El Niño state and reaching certain criteria, the occurrence of an El Niño event can be determined. The key criterion is that the sliding average sea surface temperature index in the critical area reaches or exceeds 0.5°C for at least 5 consecutive months, which can confirm it as an El Niño event.

Since May 2023, when the Equatorial Central-Eastern Pacific entered the El Niño state, the sea surface temperature index in the critical area from May to October has shown a rapid and continuous warming trend, exceeding 0.5°C for 5 consecutive months, meeting the criteria for forming an El Niño event, with a moderate intensity.

For every 1°C increase in the Equatorial East Pacific sea surface temperature region, the global annual average temperature will rise by 0.12°C. A moderate or higher intensity El Niño event usually raises the annual global surface temperature by about 0.1 to 0.22°C.

From April to October, global sea temperatures have already surpassed historical records. From May to October, the global average temperature has exceeded that of 2016, becoming the warmest year since 1850.

This El Niño event is expected to reach its peak between November and January of the following year and will last until at least April 2024. El Niño disrupts not just temperatures but extends beyond the oceans. El Niño also brings a series of extreme weather events.

The Brazil Amazon basin has experienced the lowest water levels in nearly a century, and drought has occurred in Bali, Indonesia. The intensity of precipitation in southern China will increase, and there is a greater probability of a mild winter in the north.

Panama Canal: Blocked by Drought

Two years ago, the world was shocked by a major incident in the Suez Canal:

In April 2021, the MV Ever Given, owned by Taiwan’s Evergreen Marine Corporation, accidentally ran aground in the canal, blocking shipping traffic through the Suez Canal. Hundreds of ships were forced to queue in the canal for six days.

Eventually, with the efforts of personnel from all sides, MV Ever Given was refloated, resumed its voyage, and gave way to other vessels…

(Stuck in the Suez Canal: MV Ever Given)

Unexpectedly, today, another major artery of global shipping, the Panama Canal, is also blocked.

From the aerial view, it can be clearly seen that a large number of container ships are queuing up on the sea surface at the entrance of the canal…

(The neat dots in the picture are the queuing ships)

On the sea surface outside the entrance of the canal, container ships from various countries can also be seen in the distance…

At the entrances of the canal, as many as 154 ships are queuing and waiting for passage. The average waiting time is as long as twenty-one days…

(Queuing ships)

The distribution map of ships gives a more intuitive picture of how the ships are jammed at both ends of the canal…

(Ship distribution map)

Unlike the accidental blockage of the Suez Canal caused by the stranded ship, the traffic congestion in the Panama Canal is entirely due to natural reasons.

This year, the Panama region is experiencing the most severe drought in its history. Starting from mid-July, the canal waterway has been suffering from severe water shortage, resulting in a significant reduction in the canal’s capacity. The number of ships that can pass through the canal each day has decreased significantly, leading to a gradual accumulation of ships queuing at the entrance, eventually turning into the scene of 154 ships being stuck in a “traffic jam”…

(Container ships passing through the canal)

The Panama Canal is one of the largest transportation projects in human history. Since its completion in 1914, it has connected the Atlantic Ocean and the Pacific Ocean through a waterway in Central America, allowing a large number of oceangoing vessels to avoid circumnavigating South America.

For over a hundred years, the Panama Canal has been one of the two key arteries of world shipping, supporting around 6% of global trade. The canal is 82 kilometers long and includes a massive artificial lake called Gatun Lake, which supplies water for the smooth passage of ships.

(The light blue area is the artificial lake - Gatun Lake)

However, when severe drought occurs in certain years, the artificial lake’s water level becomes insufficient, directly affecting the canal’s capacity.

There are two reasons for this. First, the lock system of the canal consumes a large amount of fresh water.

The structure of the Panama Canal is like a reservoir surrounded by dams. The water level in the canal is higher than sea level, and at the entrances of the canal, there are lock systems.

(A CG image of the Panama Canal, with the canal and artificial lake in the middle)

When a ship passes through, it must go through the lock system, gradually ascending in the chambers between the lock gates until it reaches the same level as the canal.

Let’s take the example of a three-chamber lock system,

(From low to high, they are Locks 1, 2, and 3.)

When Lock 1 opens, the ship enters…

(The ship entering Lock 1)

Then Lock 1 closes, and Lock 2 opens. Since Lock 2 is already filled with water, opening the gate will release water into the chamber of Lock 1, raising the water level until both sides are even.

(Releasing water from Lock 2, waiting for the water levels to equalize on both sides)

(When the water levels are equal, the ship enters and ascends to the next chamber)

When the water levels on both sides of Lock 2 are equal, the ship passes through Lock 2 and Lock 2 closes. Then Lock 3 opens, and using the same method of filling water, the ship continues to ascend until it reaches the water level of the canal…

(Reaching the water level of the canal and the artificial lake, entering the canal waterway)

At this point, the next ship behind comes, and Lock 1 needs to open and release water to lower the water level so that the ship behind can enter.

(The water released by Lock 1 is the additional fresh water consumed)

The water between Locks 1 and 2 is released into the sea in this way. This part of the water is the additional fresh water released from Gatun Lake by the lock system to allow ships to pass through. It means that every time the lock system raises or lowers a ship, Gatun Lake loses a portion of its fresh water.

Data shows that every passage of a large container ship consumes 200,000 cubic meters of fresh water from Gatun Lake. Most of this fresh water comes from the lake’s storage after rainfall.

(Ships passing through the lock system of the Panama Canal)

When there is ample rainfall, Gatun Lake has enough water to facilitate the passage of ships through the canal. But once a drought occurs, measures must be taken to limit the number of ships allowed to pass through in order to reduce water consumption…

The second reason is more straightforward.

Drought not only leads to a lack of fresh water required for the canal’s lock system, but also causes a significant drop in the water level of Gatun Lake itself. With the decrease in water level, the originally wide canal narrows from “four lanes” to “two lanes”, resulting in fewer ships able to pass through.

Moreover, due to the drop in water level, ships' weight must also be reduced (by unloading part of their cargo) to prevent ships with deep drafts from unintentionally running aground.

A netizen posted an illustrative image of the dry Panama Canal, which is quite vivid.

(Dry canal channel of the Panama Canal posted by a netizen)

Considering the two main reasons mentioned above, when encountering drought and insufficient water in Gatun Lake, the Panama Canal will suffer from reduced capacity and traffic congestion.

In recent years, global climate change has become more prominent, especially in the past couple of years when the El Niño phenomenon returned, leading to a general increase in global temperatures.

The combination of climate change and El Niño has caused the most severe drought in Panama’s history…

(Drought in the Panama Canal region)

Ten years ago, the area of Gatun Lake was captured in a photo, showing a vast and wide surface…

(Gatun Lake ten years ago)

But a few months ago, it appeared like this, with some areas even drying up and exposing the lake bed.

(Some parts of Gatun Lake a few months ago)

Faced with the canal congestion caused by extreme drought, the Panama Canal Authority issued a warning in mid-July, stating that the water level of Gatun Lake had dropped to about 24.26 meters, approaching the minimum design water level of 22.86 meters.

The number of ships allowed to pass through each day has also significantly decreased, from 40 before to only 32 recently…

(Large ships passing through the locks)

Just as the Evergreen Marine Corporation experienced being stuck in the Suez Canal before, this time they also experienced the frustration of being blocked. Another cargo ship under Evergreen Marine, the MV Ever Greet, had to unload a large amount of cargo due to the Panama Canal’s “traffic jam” and join the queue, waiting for a long clearance period.

(Container ship MV Ever Greet)

With 154 ships being stuck and an average waiting period of twenty-one days, the impact on the global economy is enormous.

Since 40% of containers passing through the Panama Canal are related to raw material trade, mostly involving the United States, the canal’s traffic congestion will affect raw material costs, further influencing product prices, and eventually impacting inflation which will be passed on to global consumers.

Hopefully, the drought will end soon, and the Panama Canal, this major global economic artery, will recover. Because, its blockade truly hinders the circulation of the global trade bloodline and is affecting people’s lives…

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Panama Canal Drought Causes Shipping Problems

The main reason for the Panama Canal’s drought is the lack of rainfall at the top of Lake Gatun.

Without freshwater entering the ocean from Lake Gatun, it is impossible to smoothly pass water from the Pacific to the Atlantic and vice versa.

The Panama Canal is a very cleverly designed canal, with a total length of 81.3 kilometers, connecting the Atlantic and Pacific Oceans. It is a lock canal.

Originally, the Pacific and Atlantic were not connected, and transportation had to go through a very long route.

Now, with the Panama Canal, shipping time can be greatly reduced.

Each time a large amount of freshwater is taken from Lake Gatun and poured into the ocean, the water level of the ships rises.

When the water level is the same as Lake Gatun, the ships can pass through Lake Gatun and then drain the water.

This allows the ships to reach the other side of the ocean.

However, if Lake Gatun itself lacks water and encounters extreme weather,

then Lake Gatun will not be able to complete this work very well, and many large ships with deep drafts cannot pass through Lake Gatun either.

Of course, this will result in many cargo ships being blocked and having to pay a large sum of freshwater fees.

This is roughly the situation depicted in the figure below.

Ships mainly use the locks to complete this work layer by layer. The detailed shipping diagram below will provide a clearer understanding of the principles involved.

There are three locks on the left and right sides, each raising the ships one level at a time.

Each time the water level of the lock is raised or lowered, ships can navigate on the river channel located between the Central Mountains of Panama.

Approximately 200 million liters of freshwater are discharged into the ocean each time.

Lake Gatun in the middle is the key. When Lake Gatun lacks water,

encountering extreme weather, resulting in a lack of supply,

there will be less water flowing into the ocean, and of course, there will be no way to replenish Lake Gatun.

The more water is lacking, the more the freshwater usage of Lake Gatun needs to be controlled, which will lead to increased congestion and costs.

In recent years, the El Niño phenomenon has been too severe, causing prolonged drought in Lake Gatun.

And the continuous high temperatures have also increased evaporation, leading to a more serious water shortage in the Panama Canal.

This affects the ships that can pass through, including the cargo capacity of the ships.

The Panama Canal Authority recently required that no more than 32 ships pass through each day, with a maximum draught of 44 feet.

Large cargo ships have to reduce their cargo capacity in order to pass through the canal smoothly.

Transportation capacity is reduced, effectively increasing transportation costs.

For freshwater, the fee is $10,000 for fruit ships longer than 125 feet.

In addition, depending on the water level of Lake Gatun when the ship passes through, the Panama Canal Authority will also charge variable fees ranging from 1% to 10%.

In comprehensive terms, the cost for ships passing through the Panama Canal increases by at least 15%.

Officials claim this is the most severe drought in 143 years.

As a result, the so-called “overtaking fee” reached as high as $4 million, and 124 cargo ships were blocked due to the lack of freshwater in Lake Gatun.

A Japanese energy company paid a “overtaking fee” of $3.975 million for a liquefied petroleum gas transport ship.

Combined with hundreds of thousands of dollars in regular transportation fees, the overall cost may have exceeded 30 million RMB.

After paying such a substantial cost, this ship will pass through the Panama Canal on the 15th.

Now the operators of the Panama Canal lock system have to save freshwater as it is extremely precious.

However, approximately 5% of global maritime trade passes through the Panama Canal.

Previously, the Panama Canal could accommodate 34 to 36 cargo ships passing through the locks each day.

Now, it has been reduced to 25 ships, and from February next year, it may be reduced to 18 ships.

Ships that are eager to pass through immediately will have to pay extra.

The Panama Canal Authority has reduced the number of daily ship passages multiple times.

If the situation does not improve in the future, they will continue to do so until the rainy season officially begins and rainfall returns to normal.

Drought in the Panama Canal leads to congestion of cargo ships

According to the German website Frankfurt Allgemeine Zeitung, as of November 15th, there are currently 124 cargo ships stuck in the Panama Canal, waiting for passage. Due to the need for water conservation by the operator of the Panama Canal lock system, one of the world’s most important trade routes has come to a standstill. Approximately 5% of global maritime trade is completed through the Panama Canal.

The cause of this severe situation is evidently global warming and the El Niño phenomenon. They have led to significantly lower rainfall in Panama compared to previous years, and the start of the rainy season has been delayed.

The International Monetary Fund (IMF) is monitoring this dire situation and describes it as the most severe drought in 143 years. The Panama Canal Authority recently reported that October of this year was the driest in 73 years for the record. Currently, ships are waiting for 5 to 6 days to pass.

Under normal circumstances, the Panama Canal can accommodate 34 to 36 cargo ships per day. Due to the drought, the Canal Authority has reduced this number to 25 and will further reduce it to 18 starting from February next year. The IMF report states that the drought will affect trade in the foreseeable future.

The “Port Observatory” platform believes that the impact of the Panama Canal on Latin American ports is particularly severe. The ports of Panama, Nicaragua, Ecuador, Peru, El Salvador, and Jamaica have been greatly affected. Delayed impacts on 10% to 25% of their foreign trade have been observed.

Source: Reference News

Solution for the Panama Canal

I saw someone online saying, “I always thought the Panama Canal used seawater, but it turns out it uses freshwater! China has always been a country that excels in water engineering. If this were in front of the Chinese, it would have been solved long ago. We have the ancient Grand Canal, and in modern times, we also have the South-North Water Diversion Project!”

In fact, the principle of the Panama Canal is: due to the difference in terrain, the canal is supplied by an artificial lake, not directly by the ocean.

As ships pass through the Panama Canal, they continuously consume water from Gatun Lake, allowing a portion of the freshwater from the lake to flow through the locks and into the surrounding oceans.

Originally, Panama belonged to a tropical rainforest climate, with abundant rainfall and continuous rivers flowing into Gatun Lake. Therefore, there was no worry about the insufficiency of freshwater in the lake affecting the canal. However, this year, an abnormal climate phenomenon known as El Niño caused severe drought in Panama, resulting in a shortage of freshwater. As a result, the number of ships passing through the canal per day had to be reduced to minimize water consumption. This led to a backlog of ships.

There are solutions to this problem. For example, one solution could be to install pumps for water supply. Such a project would not be considered significant in China, but why aren’t pumps being added? It is probably evident that the costs would exceed millions of dollars, and the whole country relies on this trade to sustain itself. Once these issues are resolved, where will the funds come from?

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Some people in the comments are fixated on the issue of pumps, but it was just an analogy. In reality, it is also possible to completely excavate the Panama Canal and lower it to sea level. However, if the drought is only a temporary phenomenon, such a transformation may not be cost-effective.

Panama Canal Water Supply Issue

The Panama Canal has a higher midpoint and lower ends. In the middle section, it relies on Gatun Lake, which is a freshwater lake. However, due to insufficient rainfall, Gatun Lake is unable to provide enough freshwater.

I. Situation of the Horizontal and Vertical Sections of the Panama Canal

For the purpose of controlling the amount of excavation and construction costs, the Panama Canal did not directly excavate the two ends. Instead, it utilized Gatun Lake, which is at an altitude of 26 meters, in the middle section. Ships have to pass through locks when entering or exiting Gatun Lake.

Gatun Lake is the main water source for the operation of the canal.

The process of passing through the canal is as follows: Ships enter the three-level lock chamber (such as Cocoli Locks) from the Pacific Ocean, release water from Gatun Lake to raise the water level in the chamber to approximately 26 meters, and then enter Gatun Lake.

When ships reach the locks on the Atlantic side, they need to go through another set of three-level locks (such as Gatun Locks) before entering the Atlantic Ocean. During the descent of the ship, water in the chamber needs to be released and flows into the Atlantic Ocean.

II. Water Consumption

1. Calculation without water-saving measures

It can be calculated that for each voyage of a ship, the lock chambers on both ends need to operate once. Without any water-saving measures, the total amount of water lost is:

Panama type: 304.8 meters (usable length of lock chamber) X 33 meters (chamber width) X 26 meters X 2 = 523,000 tons of water

New Panama type: 427 meters (usable length of lock chamber) X 55 meters (chamber width) X 26 meters X 2 = 1.22 million tons of water

2. Measures to conserve water

Due to the implementation of various water conservation measures[1], actual water consumption has decreased.

New Panamax:

The new locks of the canal were put into operation in 2016, with an investment of 5.4 billion US dollars, and each ship passing through the new locks requires 200 million gallons of water (about 750,000 tons).

Panamax:

The original locks, which have been in operation since the canal opened in 1914, require 50 million gallons of water (about 189,000 tons) for each passage.

The water conservation measures are as follows

(1) Cross water transfer between upstream and downstream locks.

(2) Use reservoirs to regulate water levels.

(3) Allow multiple ships to pass simultaneously.

(4) Shut down power plants at hydroelectric stations.

(5) Reduce the size of the locks[2].

3. Water balance at the end of 2023

In 2023, it was relatively dry, and water supply relied on rainfall and river inflow, with a daily amount of 7 million cubic meters.[3]

Under normal climate conditions, the daily amount of rainfall and river inflow into Tonghu was 15 million cubic meters.

The current consumption (including human water use, canal water consumption, and evaporation loss) is 10 million cubic meters per day, of which the evaporation is 2 million cubic meters, and the water consumption in the surrounding provinces is slightly less than 2 million cubic meters.

For every 1 million cubic meters of water consumed, it can complete the transportation of 5 ships.

Due to the lack of rainfall and the limited availability of water, the authorities have imposed restrictions on ship traffic.[4]

Three. Some engineering solutions

1. Digging the Canal to Sea Level

It is feasible with the current engineering capability, but after being completed, Lake Jiatong will no longer exist, making it difficult to solve the issue of fresh water supply for the surrounding residents and their production needs.

2. If seawater is desalinated and replenished into the Gatun Lake, the cost will exceed the toll charges under normal circumstances

In the absence of fresh water, it is feasible to desalinate seawater and inject it back into the Gatun Lake, but the energy consumption for desalination is very high.

Calculating at a rate of 5 yuan RMB per ton of desalinated seawater, the cost of producing 750,000 tons of fresh water through desalination would be 3.75 million RMB.

On the other hand, under normal circumstances, the charge for each ship (with a reservation status) is 150,000 USD, and in certain time frames, the auction fee is 2.85 million USD [5].

The normal toll charges are lower than the cost of desalination.

3. Pumping water back from Dadong River to Jiatong Lake is also an option, but it is not easy to implement.

By pumping water from lower-level ship locks instead of releasing water from upstream, water consumption can be greatly reduced.

Based on a calculation of a two-stage ship lock, similar to the Panama Canal type, and a pumping time of 1 hour, the amount of water that needs to be pumped is:

427 meters (length of the available ship lock chamber) × 55 meters (chamber width) × 13 meters = 305,000 tons of water.

If the goal is to pump it all within an hour, the total flow rate of the water pumps needed would be approximately 305,000 m^3/h, with a lift of about 18 meters. This would require a total combined power of around 220,000 kW for multiple pumps. If the electricity cost is assumed to be 0.5 yuan/kWh, the cost of pumping for a single stage would be 110,000 yuan, and a total of 220,000 yuan for two stages.

From an economic standpoint, this option is feasible. However, it presents significant challenges in terms of construction and energy storage (the local power grid may not be able to handle such large intermittent loads).