Navigating the Drought: How Low Water Levels in the Panama Canal are Disrupting Global Trade

The Panama Canal, a crucial link between the Atlantic and Pacific oceans, is facing a severe water crisis due to the worst drought in its 143-year history. With around 1,000 ships passing through the canal each month carrying over 40 million tons of goods, the drought has led to restrictions and reduced throughput by 15 million tons this year. Ships are experiencing an additional six days in transit, impacting global maritime trade volumes.

Ports in Panama, Nicaragua, Ecuador, Peru, El Salvador, and Jamaica are the most affected by these delays, with 10 to 25 percent of their total maritime trade flows disrupted. The effects of the drought are being felt as far away as Asia, Europe, and North America. Canal passages are set to halve to 18 ships per day by February, down from the usual 36, causing disruptions and delays for economies reliant on the canal for trade.

In response to the increasing frequency of climate-related disasters, an open platform called PortWatch has been launched by researchers from the IMF and the University of Oxford. This platform tracks nearly 120,000 cargo ships and tankers worldwide, providing real-time data on trade volumes at 1,400 ports and pinch points like the Panama Canal. PortWatch simulates international spillovers from port closures, plots disruptions to supply chains, and enables climate scenario analysis to estimate risks from climate extremes.

With the PortWatch platform, policymakers can better prepare for trade disruptions caused by climate shocks and make informed decisions on how to respond to them. The platform also sends alerts on potential and actual trade disruptions after major disasters, helping to mitigate the impact on global maritime trade.