Global trade is bracing for a potential stress test, and this time it’s not caused by a pandemic or conflict: now by extreme weather. A severe drought around the Panama Canal is forcing container ships to reduce their loads, according to a report by Bloomberg, reducing the available capacity to transport cargo, increasing the risk of delays and creating additional charges. materials.
However, the crisis is far from over: or rather, the worst is yet to come. If the situation worsens and the water level of Lake Katun falls as predicted, the market reaction will be an increase in shipping/freight costs and a rush by shippers to find faster routes, analysts assure. This is at a time when international trade is already facing a delicate situation as a result of the slowdown in the economic cycle.
But what is the impact of Katoon Lake? It is responsible for the water that allows this vital artery for world trade to function. Everything revolves around an extensive artificial lake in Panama that allows ships to cross the 33 kilometers of the isthmus.
The lake was created between 1903 and 1913 by the Katoon Dam, which retained the Sagres River. At the time, it held the title of the world’s largest artificial lake. With an area of 436 km² and an elevation of 26 meters above sea level, its formation turned many mountains into islands, the best known being Baro Colorado Island, Smithsonian Tropical Research Institute.
As each transport requires approximately 202,000 m³ of water, the Catune Lake serves as a reserve for the canal’s locks. However, the lack of rain leaves part of these mountains exposed and threatens international trade.
“This pattern will continue to have below normal rainfall in Panama for the foreseeable future,” said John Davis, chief meteorologist at Everstream Analytics.
For Lars Jensen, president of Vespucci Maritime, if Panama becomes overcrowded, shippers have two main alternatives: to go directly from Asia to the West Coast of the United States or to transport goods from Asia to the East Coast via the Suez Canal. “Either way, it’s going to create some upward pressure on transpacific freight rates,” Jensen said. Shifting cargo from the East Coast via Suez instead of Panama would add an extra week of transit time, warned Peter Sand, chief analyst at Xeneta AS in Copenhagen.