The Environment’s Impact on Trading Methods: The Panama Canal

Noor Abdelfattah

Associate Editor 

Loyola University Chicago School of Law, JD 2025

As  environmental crises are on the rise, in addition to harming the livelihood of some of the most vulnerable in the world, their consequences are leading to disasters costing trillions of dollars over time. More recently, Panama, situated in Central America, and known for its rainfall and stunning rainforests, has been facing the brunt. Home to the Panama Canal, a haven for trade and a revenue generating area for the country. The environmental consequences in Panama are forcing people to think of alternatives and leaving questions for the future of  regulations regarding the Canal. 

Water levels of the Gatún Lake

As of January 1, 2024, the water levels of Gatún Lake were a drastic six feet lower than the previous January,  lower than any other January on record. This drought is believed to have been caused due to a mix of environmental factors and El Niño. El Niño is a climate phenomenon which occurs every 7 years, where warmer-than-average sea temperature occurs in the central and eastern Pacific Ocean, close to the equator. This lake is responsible for providing drinking water to millions of people in addition to allowing ships to pass through the infamous Panama Canal. 

Prices increase to ship through the Panama Canal 

Given the fact that the Panama Canal accounts for 6% of global trade, the high demand for corporations to use this channel is only increasing. To address this concern, the Panama Canal Authority has opened an auction system in which shippers may bid for priority passage. However, this comes at an extreme price since shippers have paid exorbitant fees to expedite the passage and cut the queue. Avance Gas, for example, paid $2.4 million in August so that they cut the long waiting line. 

Alternatively, given the challenges faced with shipments in the Panama Canal, some corporations have turned to land options. For example, Maersk has begun using a land bridge instead of going through the Panama Canal. The shortage of water has forced operators of the Panama Canal to allow 24 crossings a day instead of the usual 36. Disrupting trade and making corporations find new ways to move products. 

The future of the Panama Canal 

Since the Canal moves over $250 billion of inventory every year, the future of transit on the Panama Canal cannot be overlooked. The projected transit rate for fiscal year 2024 is 9,700, a 23% decrease from fiscal year 2023. In April, the levels of the Canal are expected to fall even further, below 80 feet. Being forced to restrict the number of vessels which pass each day will of course impact the future of global trade. In addition, having a high volume of ships waiting at the entrance of the Canal also increases the likelihood of vessel collision as some boats are in line for weeks. As for the delays this will cause, individuals/families, especially in the United States, must face the reality of the condition of the environment and what consequences come with over consumption. 

Implications for regulatory compliance

The methods of regulating the Panama Canal as it is facing this drought raises concerns regarding fairness and consequences for the future. Bodies may need to intervene and ensure that no shipment has an upper hand in line because of the amount of money they are willing to pay. If this does not occur, certain top corporations may begin regulating the shipments of all products, not just the ones they produce. Additionally, as the environment is telling us human decisions are impacting it negatively, we must think critically about feasible solutions for the future.

Not only may people receive shipments and orders weeks or months late, but some people, especially in the surrounding cities of Panama, may not have access to clean water. One crucial aspect we must also consider is that we must not as a society allow the most vulnerable in the world, the poor and marginalized, to face the consequences of the decisions made by the powerful and wealthy. If so, we must question what our morals are as a society and whether we value certain lives over others.