Pulse Insights: The Panama Canal and El Niño Add Extra Pressure Points for Global Trade

El Niño has returned, bringing with it the threat of lower water levels in the Panama Canal. In a global trade environment already under pressure, this creates another chokepoint for the logistics industry to navigate.

From September 15, Panama Canal traffic will be limited to 32 vessels per day in anticipation of the drought conditions associated with El Niño, despite earlier promises that restrictions would not come into play this year. This number will likely decrease further as drought conditions in the area intensify, with Gatún Lake, on which the canal locks depend, reaching record lows for the second time in three years. May–July also saw near-record air temperatures in the region. While El Niño is a natural, cyclical weather phenomenon, human-driven climate change is believed to be intensifying its impacts.

This year’s restrictions hit in an already constrained shipping environment, introducing even more complexity. Mario Hardt, Director, Ocean Product Development (Americas & EMEA) at APL Logistics, shares some insight into an increasingly constrained shipping environment.

Broad Shipping Lane Pressures

Roughly 5% of global sea trade, or around 40 vessels per day, transits the Panama Canal. For supply chain leaders, this may feel like the 2023 drought all over again. That drought reduced daily transits by 36%, to 22 ships, and left supply chain chaos in its wake. While container vessels typically have first priority, they may still be forced to delay until they can transit. In 2023, those delays surpassed 20 days, Hardt notes. Ships without booked transit slots can instead turn to reserve auctions, where shipping costs can significantly and unpredictably increase.

At that time, freight rates had fallen from their pandemic highs, and companies could often absorb delays, whether through alternative routes or inventory buffering. Now, things are different. Gulf routes are closed to much commercial shipping. U.S. tariffs continue to amplify uncertainty, and ports face congestion globally and strikes in some key European zones. Several critical Asian ports are struggling with weather disruptions. Although some ships are already rerouting around Africa in response, this vastly increases transit times and complexity, as well as bunker costs.  

This will be particularly problematic for cargoes running Asia–U.S. East Coast routes, leaving the unfavorable options of risking uncertain, expensive transit times directly to the East Coast, if space is even available, or taking West Coast routes with the risk of port congestion and higher land transit costs to cross the country. Europe–U.S. routes also have few alternatives, particularly for food shipments. Inflation and increased costs inevitably follow.

Resilience Needs More Than Alternate Routes

As Hardt shared, “Alternative routes are not truly solutions, but rather a symptom of the chaos currently facing shipping routes.” For companies vulnerable to disruption in these trade lanes, resilience needs to start well before the cargo reaches the canal.

Visibility is increasingly important. This means assessing options from the moment the purchase order is placed, understanding the most critical products and lanes, and identifying viable alternatives early enough to make informed decisions.

As Hardt puts it, “Customers that can manage their supply chain, with reliable information, can deal better with situations like this, because important supply chain milestones are predicted from the beginning. Real planning and visibility are the keys to success.”

He also advises working with trusted supply chain partners who offer a range of concrete shipping options, rather than pipe dreams, so leaders can properly explore all options and create backup measures and alternatives where possible.

Planning for Climate-Driven Disruption as a Structural Supply Chain Risk

Climate has always been a critical factor in supply chain planning. Hardt recalled the disruptions created by evolving IMO CO2 regulations for supply chain leaders in 2020. While this wasn’t a direct climate issue, it similarly created the lack of options and visibility we see now with climate-driven disruptions, and exemplifies how even small shifts can have major impacts on supply chains.

We face a world where climate disruptions are increasing in impact and severity almost annually. El Niño creates contrasting conditions: low rainfall in Panama affects the canal locks and waterways, while the same weather phenomenon can bring heavy rain and flooding in Asia. These conditions can have knock-on impacts on cargo transits, exacerbated by typhoons.  

This is, perhaps, the broader lesson to take from the Panama Canal restrictions. El Niño is the immediate trigger today, but climate-driven disruption is not going away. Likewise, the geopolitical and capacity pressures we see today are becoming enduring parts of the supply chain. Businesses must now explore options early in planning, with the visibility and partner options to make informed decisions, even when several pressures arrive at once.
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Disclaimer: This article is issued for general information purposes only. APL Logistics accepts no responsibility for any information contained within this article and disclaims and excludes any liability in respect of the contents or for action taken based on such information.

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