Less than four years after the Panama Canal's expansion ushered in the "big ship" era for the Port of Charleston and other East Coast ports, the Central American waterway is falling victim to climate change — and the competing Suez Canal will likely benefit from the problem.
The Panama Canal Authority said this month that droughts have led to an alarming drop in water level at Gatun Lake, one of two lakes that feed the canal's locks. Every time a ship passes through the canal, about 50 million gallons of lake water has to be dumped into the locks. That water is then discharged into the ocean.
If Gatun Lake water level falls below 79 feet, the canal "must restrict its maximum allowable draft, meaning ships are required to pass with less cargo," according to RTI International, a nonprofit that monitors the lake. The water level stood at 84.37 feet earlier this month, less than the 88 feet expected for this time of year.
The canal's watershed received 20 percent less rainfall in 2019 than historical averages, the authority said. At the same time, higher temperatures have led to a 10 percent increase in water evaporation levels.
So, beginning Feb. 15, the authority will add a $10,000 surcharge to the fees ships pay when they transit the canal, which now handles about 6 percent of all world trade.
A second, variable fee ranging from 1 percent to 10 percent of a ship's regular toll will also be charged, with the amount dependent on Gatun Lake's level at the time of transit.
The biggest container ships traveling through the canal — like those now calling on the Port of Charleston — can pay a toll of roughly $1 million, so the extra fees can add up fast.
The canal authority plans to use the money to invest in projects addressing the medium- and long-term sustainability of the water supply.
But some shipping lines might opt to save their money by sailing to the U.S. East Coast via the Suez Canal in Egypt.
"If they impose restrictions that hit carriers, they will move more of their freight by the Suez Canal, and that would be a blow to Panama because the canal is a big part of the economic story of that country," said Jim Newsome, president and CEO of the State Ports Authority, which owns and operates the Charleston port.
Rising costs aren't the only factor giving the Suez Canal an advantage.
As more manufacturing moves from China to Vietnam, Singapore and other Southeast Asian countries, the Suez makes more sense for shippers looking to move their products to America because it offers a faster route.
"Any service that goes south of Hong Kong probably has a Suez route on it," Newsome said.
Noel Hacegaba, deputy executive director of the Port of Long Beach in California, said the manufacturing shift to Southeast Asia is one reason West Coast ports — which are highly dependent on China trade — are losing cargo to their East Coast counterparts. He also pointed to the rise of e-commerce, where the product has to be as close as possible to the consumer, as a factor.
West Coast ports have seen their market share of Asian imports drop to 64 percent from 72 percent over a five-year period, with most of those imports moving to East Coast ports, according to JOC.com.
The Panama Canal's water problems — and the added fees associated with them — won't end soon, according to Ricaurte Vasquez, the canal authority's administrator. Vasquez said the authority might have underestimated from the start the amount of money it should be charging shipping lines in light of the climate crisis.
"We have no plans to suspend (the charges) once we normalize the lake, because the investments we are going to have to make to give certainty to the route's water supply are important," Vasquez said in a statement.