Panama Canal reduced trade: New Rivals and the Environment Effects

The beginning of the new year has brought challenges to the world’s busiest shipping lanes. In early December, Houthi rebels targeted vessels passing through the Bab al-Mandab Strait, impacting trade volumes through the Suez Canal, which saw a 40% decrease as ships diverted around southern Africa. Simultaneously, trade through the Panama Canal, the second-busiest man-made shipping lane, has also experienced a 30% decline since November.

While the issues in the Suez are geopolitical, those affecting Panama are primarily climatic. The lakes supplying water to the canal are drying up due to annual droughts, potentially exacerbated by climate change. The locks connecting the Atlantic to the Pacific are nearing a critical point, being too shallow for the largest container ships to navigate.

Seeing an opportunity, other Latin American governments are considering infrastructure projects to divert traffic and revenue away from Panama. The canal typically handles about 5% of global maritime trade and generates $2.5 billion for the Panamanian treasury, equivalent to 3% of GDP.

Mexico’s Interoceanic Corridor (CIIT) is the most advanced alternative. Part of President Andrés Manuel López Obrador’s infrastructure plan, the CIIT aims to modernize a 300km railway across southern Mexico…