(Bloomberg) -- Listen to The Big Take podcast on iHeart, Apple Podcasts, Spotify and the Bloomberg Terminal.

The Panama Canal moves roughly $270 billion dollars worth of cargo annually — it’s the trade route taken by 40% of all US container traffic alone. But the crucial waterway is contending with a crippling drought, worsened by climate change and infrastructure constraints. Water levels are so low that the Panama Canal Authority is restricting the number of ships that can pass through each day. As the line gets longer, shippers are paying to jump the line, or resorting to workarounds.

Bloomberg reporter Peter Millard traveled to Panama to understand how the drought is snarling global shipping and impacting locals. Millard joined the Big Take podcast to share what could solve the canal’s water level issues: from the experimental ideas, to the politically fraught choice to build a new reservoir and flood neighboring lands. There are no easy fixes. But with a traffic jam this big, getting the canal flowing again is becoming more urgent.

Read more:  Saving the Panama Canal Will Take Years and Cost Billions, If It’s Even Possible

Listen to The Big Take podcast every weekday and subscribe to our daily newsletter

Here is a lightly edited transcript of the conversation:

Sarah Holder: Today, we travel to Panama. Specifically, to the Panama Canal. 

The Panama Canal is an artificial waterway that connects the Atlantic Ocean with the Pacific Ocean. It cuts right through the middle of Panama — and for more than a century, it’s been one of the main routes for global trade. 

Advertisement: Almost everything that touches our lives have one thing in common… it comes through the Panama Canal… 

Sarah Holder: And when they say almost everything that touches our lives — they mean everything... 

Peter Millard: Cars, refrigerators. You have a lot of produce coming from South America, coming from Chile, Peru, that uses the canal.

Sarah Holder: The Panama Canal moves a total of roughly $270 billion dollars worth of cargo annually. And 40% of all U.S. container traffic travels through the canal. But lately… there’s been a bit of a traffic jam. 

Sarah Holder: Extremely low water levels in the canal have forced it to limit the number of ships passing through. 

Peter Millard, our senior correspondent in South America, recently went to Panama to see the problem up close. 

Peter Millard: Normally, they do 36 to 38 vessels a day through the canal. That's, you know, kind of the normal standard. Right now — they're at about 22 to 24. The Panama Canal uses three times as much water as New York City… in a single day. Ships need these high volumes of water to be able to float efficiently through the canal, and right now — there’s not enough water for all of them. 

Peter Millard: The Panama Canal has been having troubles with water throughout 2023. And in October, the situation got a bit more critical. 

Sarah Holder: As the line of ships grows in the canal, the consequences that this backlog could have for the global and local economy grow too. On today’s show — what’s happening to the Panama Canal and can it be fixed?

Sarah Holder: The Panama Canal first opened in 1914. 

As a man-made waterway, it was a feat of engineering. 

Archival tape: There is the Panama Canal from the underside… one of the greatest pieces of man-made construction ever known… 

Sarah Holder: Creating it required cutting down a forest, and damming up water from nearby rivers. These rivers were then routed to Lake Gatun, which is the main reservoir that feeds water into the canal. When Peter went down to visit the canal, he saw that the water levels at Lake Gatun were incredibly low. So low… he could see the remains from the forest that was once there.

Peter Millard: You can see tree stumps coming out of the ground, just a few hundred feet from where the boats pass. It looked pretty out of place.

Sarah Holder: You can see the stumps poking up from the lake at certain times of the year — like the dry season, around May. But Peter says seeing them at this time of year is not normal.

Peter Millard: This is November, at the end of the rainy season. They’re not supposed to be there.

Sarah Holder: The low water level in the lake is happening for a few reasons. Panama has been experiencing a drought that has intensified with the El Niño climate phenomenon. The draught has significantly reduced Panama’s rainfall, which the canal’s reservoirs rely on. And the problem is being made worse by an expansion of the canal that was completed in 2016. For this expansion, the canal’s authority added more slots to the canal in order to accommodate more ships, and bigger vessels. Officials at the canal hoped that this would bring more business — but there was a big problem. 

Peter Millard: When they did that, they did not secure another source of water to pump into the lake. 

Sarah Holder: In other words — they invited  more people to the party but forgot to buy the extra keg. Now, the canal is seeing the consequences.

Peter Millard: And so you had a really dry year and also you had the increased usage of the canal, without enough water on hand for it to function properly. 

Sarah Holder: Without enough water, the Panama Canal Authority has been forced to put in place the kind of restrictions we are seeing now — which limit the number of ships that can pass through in a day. And these restrictions on how many ships can go through mean all of them have to wait longer. So the stuff on these cargo ships is taking longer to reach its destination. 

Peter Millard:  Longer routes to get the product to market. 

Sarah Holder: Which can be a real problem if the ship is carrying something like fruit that needs to be shipped out at a certain time of year. And so to help with this — the canal authority  came up with a band-aid solution: to charge ships that wanted to cross the canal faster an “expedited fee.” In November, we reported that shipping companies have paid a total of $235 million dollars in these expedited fees. And the clients that are paying the most are petroleum and gas producers.

Peter Millard: The thing is they have to pay a huge fine if they reach their client late. And so they've decided that, okay, we're just going to pay whatever we have to. They're the clients that have been paying the most, to jump in line.

Sarah Holder: But this is not a sustainable solution. Some shippers who aren't willing or able to pay to jump the line are already moving their cargo to other routes. They are now sending their ships around the southern tips of Africa and South America, or through the busy Suez Canal. These other routes take longer and at the Suez, there are security concerns. But with these kind of delays at the Panama Canal — shippers are increasingly willing to look for other ways to go. And if fewer and fewer ships go through the canal — that is a real problem for Panama. The canal is Panama’s biggest source of revenue, bringing in $4.3 billion in 2022, and thousands of jobs. Peter Millard:  They said that the most recent fiscal year will probably be half a billion dollars less in revenue than the previous fiscal year.

Sarah Holder: After the break — Panama looks to longer-term solutions for fixing the canal… and finds other challenges. 

Peter Millard: There's about 10,000 people who live in the area that they want to flood. 

Sarah Holder: We’ll be right back. 

Sarah Holder: Hey, we’re back. Before the break, my colleague Peter Millard was telling us about how the low water levels have created a crisis in the Panama Canal. This has frustrated shipping companies to the point where they are returning to older routes, or paying millions of dollars in expedited fees. As we enter 2024, I asked Peter if there are other, more long-term solutions on the table. And he told me that the idea that seems most possible seems to be creating a brand new reservoir for the canal. For this, canal authorities have eyed the Indio River. The project would involve damming up the river, and then drilling a tunnel through a mountain to connect it to the canal. It’s a process that looks a lot like how the canal was created in the first place — by modifying the land, and allowing the water to break in, flooding the area. The problem is…. that there’s already people living there. 

Peter Millard: There's about 10,000 people who live in the area that they want to flood. 

Sarah Holder: When visiting the community near the Indio River, Peter met Elizabeth Delgado. 

Peter Millard: She lives on the access road to the Indio River. And she's like, kind of like the closest house to the river. So she would be one of the first people to get flooded. She lives out there with her family. They farm rice, they farm plantains, cassava. She says, okay, we're set up, we can kind of live off of what we produce here. And, you know, this is how we know how to live. 

Sarah Holder: And Elizabeth of course is not the only one in her community who is concerned. 

Peter Millard: The people who live alongside of the lake, they don't want to move. They're already holding community meetings and figuring out how they're going to oppose this. 

Sarah Holder: Canal officials are aware of the tension that this creates. But this is the primary solution being looked at to combat the low water levels. 

Peter Millard: I went to meet with Erick Córdoba; that was at the headquarters for the Panama Canal Authority. 

Sarah Holder: Erick is the head of the water division at the canal. 

Peter Millard: You walk in the main entrance and they have the first bell from the first boat that went through the canal back in 1914. 

Erick Córdoba: Nosotros no tenemos la libertad de realizar inversiones en ese sitio. Necesitamos autorización del gobierno de las comunidades y que todo el mundo esté de acuerdo. 

Sarah Holder: Erick told Peter that they will need everyone to agree in order for the project to gain government approval. 

Peter Millard: And so, you know, they can do the engineering, but they can't do the politics behind it. 

Sarah Holder: In the meantime, other decidedly more experimental measures are being taken to bring more water into the canal. Like … creating clouds. 

Peter Millard: These are desperate times for Panama, and so they're looking into desperate measures. There’s a company based in North Dakota that does cloud seeding. A test airplane went down there in November. 

Sarah Holder: Cloud seeding is a technology that’s been around for decades. 

Peter Millard: But where it’s used and been used successfully are in very dry climates, so it’s not something that has been deployed in the tropics, like what they’re trying to do in Panama.

Sarah Holder: But whether it’s through expanding the Indio River or creating more clouds, the canal authorities need to come up with something. Because the situation in Panama has become increasingly urgent and shippers are getting impatient.

Peter Millard: A miracle could come, but that won’t be lasting. We’ve seen more El Nino events. And if you look at the climate models for Central America, it’s expected to get drier over the course of this century. And so, everything points to more problems. And the solution is, political more than technical. And then that’s a decision that Panamanians need to make. Do they want to flood another part of the country to be able to keep this main industry operating at capacity? That's the decision that the country has to make.

This episode was produced by: Adriana TapiaSenior Producers: Gilda Di Carli and Naomi ShavinEditors: Caitlin Kenney and Christine BuurmaExecutive Producer: Sage BaumanSound Design/Engineer: Alex Sugiura Fact-checker: Sommer Saadi

Have questions or comments for the team? Reach us at bigtake@bloomberg.net.

©2024 Bloomberg L.P.