Ilya Espino de Marotta has become the first woman to lead the Panama Canal, taking charge of an institution that is once again confronting its most persistent modern-day enemy: water. The canal handles roughly 5% of global seaborne trade, so its reliability has consequences far beyond Panama's borders.

The 65-year-old engineer formally assumed office on Monday for a seven-year term, capping more than four decades at the canal, during which she worked across engineering, operations and sustainability and played a leading role in delivering the expansion project valued at more than $5bn. Yet her immediate challenge is less about concrete and locks than meteorology. The canal's core constraint is that each transit consumes tens of millions of gallons of fresh water from Gatun Lake, the same reservoir that supplies much of Panama's drinking water, meaning every ship movement draws down a shared and shrinking resource.

Rainfall across the canal watershed from May through August came in 34% below its historical average, while inflows were 44% below normal. According to Ursa Shipbrokers, Gatun Lake averaged 84.2 ft in August, down 4.6 ft since January and marking a seventh consecutive monthly decline. Particularly concerning is that levels have kept falling during what should be Panama's wet season.

A strengthening El Niño could make matters significantly worse. The US Climate Prediction Center sees a greater than 90% chance of a very strong event through the northern hemisphere autumn and winter, and Panama has already declared a nationwide state of emergency over the developing weather phenomenon. El Niño events historically bring drier conditions to Central America, and the 2023-24 episode was among the factors behind the canal's worst operational disruption in decades.

Daily transit capacity fell to 34 ships last week and will drop to 32 from September 15, compared with around 40 in unrestricted conditions. Officials have warned that if rainfall disappoints through September, October and November, capacity could be reduced again early next year.

There was some relief on Friday, when the canal postponed a planned reduction in maximum neopanamax draft from 48 ft to 47.5 ft after an improved short-term assessment of Gatun Lake levels. The authority stressed, however, that conditions remain under constant review.

Unlike the great drought of 2023-24, Panama's current water shortage coincides with a massive reshaping of energy trades caused by the war in the Middle East. With Hormuz flows disrupted, greater volumes of US LPG, LNG and refined products are heading west through Panama towards Asia.

Broker BRS noted in a new report that tanker queues are lengthening. Tankers above 34,000 dwt are waiting around three days on the Pacific side and 4.2 days on the Atlantic side, almost double the levels seen earlier this year.

MR2s are particularly exposed, with around 10 transiting each day as record US refined product exports feed Asian demand and, under Jones Act waivers, additional fuel moves from the US Gulf to the US west coast.

Gas shipping faces an even bigger Panama problem. Shipping analysts at Scandinavian bank SEB pointed out in a recent report that operators are already resorting to improvised cargo transfers and month-long diversions around South America or the Cape rather than paying enormous auction premiums or waiting in line. With El Niño still strengthening, the bank expects congestion to persist or worsen, supporting already elevated VLGC tonne-mile demand and freight rates.

The value of guaranteed passage shows how acute that dependence has become. As Splash reported, South Korea's SK Gas paid a record $5.3m late last month to secure a September 1 transit for the LPG carrier G. Spirit, smashing a $4.6m record set only weeks earlier. Ships arriving without reservations have meanwhile faced waits approaching 11 days.

Panama has responded by adjusting its booking system, giving greater flexibility to neopanamax users and guaranteeing minimum allocations to LNG and LPG carriers, containerships and other sectors as it tries to extract maximum utility from diminishing water resources.

Dry bulk is already showing what happens when the sums stop working. Ursa Shipbrokers reported that just 162 bulk carriers transited Panama in August, down 32.5% year-on-year. For low-value commodities, paying millions of dollars to jump the queue is rarely viable.

A US Gulf grain cargo travelling from New Orleans to Qingdao takes roughly 35 sailing days through Panama at 12 knots. Sending the same ship around the Cape of Good Hope takes almost 54 days, adding 5,395 nautical miles and nearly three weeks of employment.

Such disruption benefits tonne-miles and potentially freight rates, but it is dangerous for the canal. The longer Panama becomes unreliable, the more cargo interests are forced to build alternatives into their trading patterns. Rival routes and land corridors, including US rail links and a proposed Mexican interoceanic corridor, have long sought to capture cargo that Panama currently moves, and repeated drought-induced restrictions give those alternatives their strongest opening in decades.

Espino de Marotta's ultimate answer is water security. Her strategic plan includes the long-discussed Río Indio reservoir, alongside new Atlantic and Pacific port terminals, an energy corridor and a logistics corridor. Río Indio is designed to strengthen supplies for both canal operations and the Panamanian population for decades, but it will take years to deliver — meaning near-term management of transits, drafts and bookings remains the operative lever.

During the last drought, daily transits sank as low as 22, drafts were slashed and queues exceeded 160 ships.

Source: Splash247