The water crisis calls into question the reliability of the Canal

The water crisis long period driven by El Niño phenomenon has led to Panama Canal to take extreme measures to protect its competitiveness and customer reliability of the interoceanic route, which has an operation dependent on fresh water against it.

He director of the Panama Canal, Ricaurte Vásquez, acknowledges that the maritime world is less reliable in its two channels, one –Suez Canal– for military reasons and others – Panama Canal– due to lack of water, leaving shippers to use longer routes as an alternative.

Vásquez assures that when the water situation normalizes, the most efficient route will continue to be Panama, however, in the absence of a real alternative on the water, it may happen that shipping companies order ships that do not pass the interoceanic route.

Despite the reduction in traffic, Vásquez defends that the problem is not the operational capability of the road, but the national decision in favor of allocating the water basins to the Panama Canal that are needed to guarantee the viability of the business.

The Panama Canal is still a safe route, with a good level of reliability despite the 24 daily transits scheduled until April, which depend on supply and demand and how much clients are willing to pay for a slot, he pointed out.

To address the reduction in traffic, Panama Canal established an auction mechanism, with ships paying up to $4 million for a slot on the transit route.

This showed that the value of the route is much higher in critical conditions, although it cannot be abused and take into account the state of scarcity, as if it were the usual norm of business, Vásquez admitted.

This also demonstrated the tolerance of the economic value of the route and it is not surprising that others are interested in trying to capture that value, he added.

But as the market adjusts and queues decrease, auction prices will not remain at the same levels, the highway manager warned. Vásquez confirmed deviations, redistribution of cargo, cancellations of transits, adjustments through the allocation of ships for other routes.

When there are 24 transit slots and 150 ships waiting for a slot, there are more than 100 customers who are not satisfied.os, he indicated. In view of this, the Panama Canal has modified the reservation regulations, with a certain level of flexibility, as well as segment auctions to compete among competitors and thus reduce speculation on transit spaces.

Vásquez warns that it is not good business practice to try to use a lack of capacity to extract the highest level of revenue from a client. The channel is not transactional, but maintains long-term relationships with clients who have been on the road for more than 30 and 50 years, he said.

The issue of customer confidence in the Panama Canal is something that is being managed. “They understand that there is a drought,” he said.

Likewise, adjustments have been made within Panama Canal operations to accommodate as much cargo as possible on the fewest number of ships for which it has transit capacity.

“This year’s water demand has led us to better understand the Panama Canal’s water body in order to increase the canal’s operational capacity”Vásquez pointed out.

If at some point we used one million cubic meters to transit five ships through the Panamax lock, today we transit eight Panamax ships with the same amount of water with lateral transfer. A 60% improvement in the relative efficiency of fresh water use.

Despite the strategies, Panama Canal predicts a $700 million decrease in toll revenue.

The Panama Canal has stopped receiving nearly $100 million in monthly toll revenue compared to last year.

In the first three months of the current fiscal year, 791 transits less and 20 percent less cargo passed through the canal compared to the same period of the previous year.

Vásquez warns that securing the Canal’s competitive position in the market will depend on announcing to the world that Panama has a long-term solution to its water shortage problem.