A severe drought in Central America, linked to climate change, is cutting the capacity of containerships and hence increasing shipping costs through the Panama Canal. Lake Gatun, which provides the freshwater needed to lift vessels over a series of canal locks from the Pacific Ocean to the Atlantic Ocean, is currently suffering historically low water levels and the drought is projected to get worse through the summer.
The result is higher surcharges per vessel and limits on how low ships can sit in the water, meaning each ship must load less cargo (Figure 1). Some ship carriers are already passing some of the cost to container owners via a fee of up to $500 per container. If the situation gets much worse, the canal could be forced to cut the number of ships it transits each day to between 28 and 32, from as many as 36 currently.
Container ship owners may have to re-route goods from south and east Asia to the eastern USA and Europe through the Suez Canal instead of Panama. It is thought that even with shipping rates lower now than during the Covid pandemic, a cost increase of 20% per container would boost the inflation rate on the price of many electrical and clothing goods by up to 0.5%.
Figure 1.