The Source of Income: Panama Canal Fees During Low Water Levels
In recent months, the low water levels have forced officials to reduce the number of ships allowed to pass through the Panama Canal, disrupting the global supply chain and increasing transportation costs.
Stable Financial Situation
However, it is worth noting that the decrease in ship traffic has not caused a financial crisis for the Panama Canal. This is due to the fact that the canal authority had significantly raised fees prior to the canal experiencing one of the driest periods in the century. Additionally, shipping companies are willing to pay substantial amounts in special auctions to secure passage through the canal amidst reduced ship traffic.
Over the 12-month period ending in September last year, the canal’s revenue increased by 15% to nearly $5 billion, despite a 1.5% decrease in cargo volume.
The Panama Canal management agency has refused to disclose how much money they earned from the auctions. However, Ilya Espino de Marotta, the deputy canal manager, mentioned at a maritime conference in Stamford, Conn., that the auction revenue contributed to the canal’s overall revenue.
Despite the financial stability of the canal during severe water shortages, it indicates how global supply chain managers are adapting to climate change disruptions affecting the crucial maritime trade route, which accounts for approximately 5% of global seaborne trade.
Potential Challenges Ahead
If delays continue to persist and costs keep rising, shipping companies may consider alternative routes to bypass the Panama Canal. Last year, when the canal experienced congestion, ships traveling from Asia to the East Coast of the United States started diverting through the Suez Canal, resulting in longer journeys and increased fuel consumption.
Even though Panama is one of the wettest countries in the world, a significant decrease in rainfall last year depleted the necessary water levels required for lifting and lowering ships along the 40-mile stretch between the Atlantic and Pacific Oceans. Climate experts believe that water shortages could become more common.
El Niño phenomena are causing hotter and drier conditions in Panama, and scientists suggest that climate change could prolong drought periods. According to the canal management agency, last year’s rainfall in the Panama Canal basin was 1.85 meters, significantly lower than the historical annual average of 2.6 meters.
To conserve water, the government gradually reduced the number of daily transits from the normal range of 36-38 ships to 22 by December. However, higher-than-expected rainfall and the canal’s water conservation measures have helped increase the daily transits to 27. Analysts note that while the number of transits remains below normal, the canal’s financial situation remains relatively stable.
Verónica Améndola, an analyst at S&P Global Ratings, expects the canal’s revenue in the 12-month period ending in September to be similar to the previous year, primarily due to the increased canal fees. S&P Global estimates that the transportation cost through the canal will rise from $6 per ton to $10 per ton.
The canal management agency anticipates generating $2.47 billion in revenue for the Panamanian government this year, slightly lower than the record $2.54 billion generated last year.
This demonstrates the resilience of the Panama Canal in the face of significant water shortages and highlights its ability to adapt to changing market conditions.
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