World Stock Watch

Panama Canal Sees Trade Rebound After Drought

After two years of severe drought conditions, the Panama Canal is experiencing a significant trade rebound. The canal’s administrator, Ricaurte Vásquez, has implemented a new business model to optimize water usage and improve forecasting, ensuring certainty and reliability for its users.

Critical to US Economy and Trade

The Panama Canal is vital to the US economy and trade, with the US being the largest user of the canal. Approximately 73% of Panama Canal traffic consists of US commodity export and import containers, and 40% of all US container traffic passes through the canal every year. The canal handles around $270 billion in cargo annually.

New Booking System and Water Conservation

The canal’s shift to a fully booked system has led to an increase in average vessel size, allowing more containers to be transported on fewer vessels. This strategy has resulted in significant water savings and reduced wait times, generating an additional $400 million-$450 million in revenue in the fourth quarter.

Water Forecast Improves

Vásquez reports that the canal’s water forecast has improved significantly, with normal water levels expected at Lake Gatun and Alajuela Lake. The Neo-Panamax locks, which use less water than the Panamax locks, have a water recovery system that can reclaim 60% of the water used during a vessel’s transit.

Competition from Suez Canal

Despite competition from the Suez Canal, Vásquez predicts that the Panama Canal will recover to pre-drought volumes, focusing on larger vessels and energy-related trade. The canal is gradually increasing its daily transits, with a goal of reaching 36 transits per day by January.

Dam Project and Future Planning

The Panama Canal Authority is considering a potential dam project, which could be operational by 2030. An announcement is expected in the first quarter of next year. If approved, the project would take four years to build and would not be completed before the next El Niño event in 2027. However, Vásquez is confident that the canal is better prepared to handle future water level issues, thanks to improved forecasting procedures and sharing of information with customers.