Location, location, location – Why the Panama Canal matters

Early beginnings: As early as 1881, France recognized the potential of the canal and began its development. However, the project stalled due to low investors' confidence, engineering challenges, and a high worker mortality rate.

The US steps in: In 1904, the US took over the project. Ten years later, in 1914, the Panama Canal officially opened.

The Panama Canal dramatically reduces sailing times between the Atlantic and Pacific Oceans. It also allows vessels to bypass the lengthy, hazardous route around South America. Despite being completed 110 years ago, the canal remains one of the most significant engineering achievements in history.

In 2023, due to water shortages, Panama dramatically reduced the number of ships permitted to pass through the canal from 13,000 vessels down to 10,000 vessels. Wallenius Wilhelmsen, like many others, felt the impact. The global tonnage allocation department worked tirelessly to manage these restrictions by:

Participating in auctions for available passage slots
Pre-booking slots well in advance

Rita Dovran, senior manager for global tonnage allocation in Wallenius Wilhelmsen, explains, “During 2024, the situation improved because there has been more rain. We are now almost back to normal levels, but it is a fluctuating picture. Nobody can control the amount of rain. We continually optimize our fleet deployment to match the cargo to be carried. In the situation with the Panama Canal, we ensured that we minimized the risk of disruption to our customers cargo flows. To be successful in situations like this, Wallenius Wilhelmsen is in a good spot having the level of scale and flexibility in our 125-vessel fleet. That is one of the great benefits of sending your rolling cargo with a company the size of Wallenius Wilhelmsen.”

The Panama Canal relies on an artificial lake to function. Here’s how it works:

- Lifting ships: Water from the lake flows through a series of locks, lifting ships from the coast up to the interior and then down to the opposite shore.
- The Pacific vs. Atlantic: Interestingly, the Pacific Coast is higher than the Atlantic, but the canal’s ingenious design overcomes this.
- Dependence on rain: The canal depends on rainfall to fill the waterway. In 2023, low water levels meant the number of ships passing through had to be cut from 35 to 22 per day.

In a typical month, Wallenius Wilhelmsen sails around 20 to 26 ships through the canal, moving both north and south. When ships cannot use the Panama Canal, they often must take a much longer route around the Cape of Good Hope in Africa. This detour adds two weeks extra sailing time, leading to a capacity crunch in global shipping. In addition to delays, this also leads to higher emissions due to increased fuel consumption, neither of which is positive for a global shipping company or the planet.

In May 2024, rain returned. Most restrictions were lifted. However, port authorities say that climate change and frequent El Nino periods are affecting ocean temperatures, which generally reduces rainfall patterns. There are discussions on how to offset these changes by establishing a new reservoir, but this would involve displacing 2,000 people, as reported by the New York Times in an article from August 2024. Environmental, economic and geopolitical factors intertwine, and no decision has been made yet.