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An Industry Lesson From Panama’s Drought And What It Means For Our Future

The latest drought in Panama has just put all logistics professionals on high alert as to how climate change can negatively affect the business side of the industry.

This eye-opening weather problem has pushed water levels far below historical norms, and in turn, Panama Canal operators have been forced to impose significant draft restrictions on vessels travelling the throughway. Long-term climate patterns suggest that this issue may be partially self-inflicted. According to the International Energy Agency, the industry produced nearly 8 Gt—over 20%—of global greenhouse gas emissions in 2021, and it is likely that the industry’s negative contribution to climate change is growing.

A recent report from the U.S. Environmental Protection Agency (EPA) shows that overall warming is changing climate patterns and gradually drying out the Central American region, specifically Panama, making this a critical industry issue because lower water levels in the Panama Canal will hinder the movement of vessels and significantly delay cargo deliveries.

“It is clear that, in some ways, we are our own worst enemy, and the industry is indeed a significant contributor to climate change,” said Anthony Fullbrook, President of OEC Group’s North region. “If this weather trend continues and becomes the norm, then our industry is looking at a potentially nightmarish situation. This will be especially true when demand begins to increase, as drier conditions and capacity restrictions may permanently alter trade lanes and completely change the way we operate.”

In basic terms, historically low rainfall has meant that ships can only sit so deep in the water before there’s a dangerous chance of bottoming out. Draft restrictions in the canal have been reduced from 50 to 44 feet so ships can pass through safely. While Neo-Panamax containerships are designed with canal passage in mind, experts expect that the six feet between normal and current draft levels will force capacity cuts of up to 30%. If this is the new normal, then only smaller vessels with less freight than the industry is used to will be able to traverse the canal – making it more challenging to ship cargo to U.S. East and Gulf Coast ports.

“The real problem is, in the next six to seven years when there may be another major labor issue on the West Coast, then shippers could be left without any easy, efficient, or cost-effective alternative routing options because larger ships will simply not be able to go through the Panama Canal,” said Steve Myers, Vice President of Operations for OEC Group’s Northeast Region. “Everyone in the industry should be concerned because our actions are not just affecting the planet, but our industry, as well.”

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