Severe drought causes major drop in Panama Canal traffic which could cost millions of dollars

Panama Canal has been hit by a severe drought that began last year. It has forced authorities to slash ship crossings by 36 per cent in the Panama Canal.

A report by The Associated Press mentioned that the new cuts were announced Wednesday (Jan 17) by authorities in Panama.

The recent reduction is set to pose an even greater economic blow than previously expected as the Panama Canal is one of the world's most important trade routes.

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Panama Canal Administrator Ricaurte Vásquez now expects that lowering water levels would cost between $500 million and $700 million in 2024, up from $200 million previously. wreaked havoc on the 80-kilometre maritime channel.

It has generated a traffic jam of vessels. It has made the viability of canals doubtful for global transport and raised fears about its impact on world commerce.

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"It's vital that the country sends a message that we’re going to take this on and find a solution to this water problem," Vásquez said.

The news agency's report further added that the disruption of the major trade route between Asia and the United States comes at a precarious time.

Attacks on commercial ships in the Red Sea by Yemen's Houthi rebels have rerouted vessels away from the crucial corridor for consumer goods and energy supplies.

The combination is having a far-reaching impact on global trade, delaying shipments and increasing transportation costs.

According to analysts, several corporations were planning to reroute to the Red Sea, a crucial route between Asia and Europe, to avoid delays at the Panama Canal.

(With inputs from agencies)