The Panama Canal is implementing further restrictions on daily ship transits and vessel draft due to critically low water levels caused by the El Niño weather phenomenon. Starting September 3, daily Neopanamax capacity will be reduced to nine slots, with Panamax capacity at 25, tightening to 23 by September 15. The canal, which typically handles up to 40 vessels daily, will see traffic cut to 32 ships per day from September 15, down from the usual 36, and significantly lower than the 14,000 ships annually that transit the waterway. This comes after an initial optimistic outlook on water supplies faded, as rainfall from May to August was 34% below the historical average in the canal area.
These reductions are reminiscent of the 2023-2024 El Niño event, which forced daily transits down to 22 and maximum draft to 13.41 meters, resulting in 20% fewer vessels and a 17% drop in tonnage. The current draft limit is being reduced from 15.24 meters to 14.63 meters. Each 30-centimeter reduction in draft can mean a ship carries about 200 fewer containers, significantly impacting large vessels that can carry up to 16,000 containers, particularly affecting the container sector which is the canal's largest revenue source.
The Panama Canal is crucial for global trade, handling 5% of worldwide maritime trade and connecting the Pacific and Atlantic oceans. Approximately 70% of containers passing through the canal are destined for or originate in the United States, linking China, South Korea, and Japan with the US. The latest restrictions are expected to lead to higher shipping costs and longer waiting times for vessels, potentially affecting US trade and increasing prices for consumers. Some ships are already taking longer detours via Africa to avoid the canal's constraints.
Auction prices for transit slots have surged due to increased demand. While average auction prices were $55,000 between October last year and February this year, they have tripled, with one South Korean ship reportedly paying a record $5.3 million on September 1. Niels Rasmussen, chief shipping analyst at BIMCO, stated that reduced cargo capacity combined with higher auction prices is likely to push freight rates higher, particularly affecting container cargo from Asia to the US East Coast and LPG exports from the US Gulf to Asia and the western coasts of Central and South America. The canal generates about $3 billion annually for Panama.
