The Panama Canal Authority (ACP) announced daily transit reductions due to a severe drought linked to the El Niño phenomenon. Starting September 3, the number of vessels allowed through daily fell from 36 to 34, with a further reduction to 32 ships daily by September 15. This is a significant decrease from the canal's usual capacity of up to 40 vessels per day, and a drastic cut compared to 2023 when daily transits were reduced from 38 to 22 due to low water levels.
The drought has led to lower water levels in the artificial lakes that feed the canal, requiring each transiting ship to use approximately 200 million liters of water. The canal handles 5% of global maritime trade and approximately 40% of US container traffic, with $270 billion of cargo passing through in 2024. The restrictions in 2023 and 2024 led to 20% fewer vessels and a 17% drop in tonnage, causing longer queues and waiting times, currently around 10 days.
These restrictions are causing a bidding war for transit slots. Average auction prices for slots, which were $55,000 between October last year and February this year, have tripled due to surging demand. A South Korean ship reportedly paid a record $5.3 million to pass through the canal on September 1, and another container ship paid around $4 million to jump the queue. The canal has also reduced the permitted draft of vessels from 15.24 to 14.63 meters, which means ships lose around 200 containers for every 30-centimeter draft decrease, significantly impacting large container vessels.
Analysts, such as Niels Rasmussen from BIMCO, predict that reduced cargo capacity and higher auction prices will push freight rates higher. This will particularly affect container cargo from Asia to the US East Coast and LPG exports from the US Gulf to Asia and Central/South America. Some vessels may be forced to reroute around the Cape of Good Hope, leading to longer and more costly journeys. The container sector, the canal's largest source of revenue, is expected to see a significant impact, potentially increasing prices for consumers and affecting US trade.
