Flexport CEO Ryan Petersen said that a strengthening El Niño could cause severe drought at the Panama Canal and create significant shipping backlogs.
This potential disruption threatens global supply chains by limiting the number of vessels that can transit the waterway. Because the canal relies on freshwater levels to operate its locks, prolonged drought directly reduces the volume of trade passing between the Atlantic and Pacific oceans.
During a Bloomberg Television interview, Petersen said that previous weather patterns had already strained the system. He said that a few years ago, the canal operated at about two-thirds of its normal capacity [1].
According to Petersen, current forecasts suggest the upcoming drought could be more severe than those previous episodes. "It was a few years ago when you had only two thirds the capacity, and this drought is forecasted to be worse than that," Petersen said. "And so, you may see real backlogs at the Panama Canal."
El Niño is a climate pattern characterized by the warming of surface waters in the eastern Pacific Ocean. This shift often leads to drier conditions in Central America, which lowers the water levels in Gatun Lake, the primary reservoir fueling the canal's operations.
Reduced water levels force canal authorities to implement draft restrictions, meaning ships must carry less cargo to sit higher in the water. When capacity drops, shipping companies face a choice between waiting in long queues or diverting vessels to longer, more expensive routes around the tip of South America.
Industry analysts said that these environmental pressures coincide with other geopolitical tensions in global shipping lanes. The combination of climate-driven bottlenecks in Panama and instability in other maritime corridors increases the risk of delayed goods, and higher freight costs for consumers.
“"this drought is forecasted to be worse than that"”
The warning highlights the growing vulnerability of global trade to climate volatility. As El Niño reduces the operational capacity of a critical maritime chokepoint, the resulting backlogs can trigger a domino effect, increasing shipping costs and delaying the delivery of raw materials and finished goods worldwide.
