The Panama Canal, a critical waterway handling 5% of global maritime trade and 40% of US container traffic, is facing significant operational challenges due to a severe drought caused by the El Niño weather phenomenon. The Panama Canal Authority (ACP) has announced successive reductions in daily vessel transits. Starting September 4, the limit was reduced from 36 to 34 ships per day, with a further reduction to 32 ships set for September 15. This is a considerable drop from the canal's traditional capacity of up to 40 vessels daily. The ACP administrator, Ilya Espino de Marotta, indicated that further restrictions might be imposed if drought conditions persist, although the current situation is not expected to be as severe as the 2023-2024 drought, which saw daily crossings fall to 22.
In addition to limiting the number of ships, authorities have also reduced the maximum permissible draft for vessels, from 15.2 meters to 14.6 meters (50 feet to 48 feet). This means ships must carry less cargo to navigate the canal, as each 30-centimeter draft decrease can mean a loss of around 200 containers for large vessels. The canal's water manager, Erick Cordoba, noted that rainfall from May to August was 34% to 35.8% below the historical average in the canal's watershed. Each ship transit consumes approximately 200 million liters (53 million gallons) of freshwater, derived from Gatun and Alajuela lakes.
The restrictions come amidst unusually strong demand for canal transits. Disruptions in the Middle East have redirected tanker traffic, and demand for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) has surged. This increased demand, coupled with reduced capacity, has led to a bidding war for transit slots. Average auction prices for slots, typically around $55,000, have reportedly tripled, with one South Korean ship paying a record $5.3 million to pass on September 1. Analysts like Niels Rasmussen from BIMCO predict higher freight rates and longer, more costly journeys around the Cape of Good Hope for some vessels, particularly impacting container cargo from Asia to the US East Coast and LPG exports from the US Gulf to Asia.
The canal plays a crucial role in international commerce, with $270 billion worth of cargo passing through in 2024, and 70% of its traffic either originating in or destined for the US. The prolonged restrictions are expected to lead to higher shipping costs and longer waiting times, which could translate to increased consumer prices, according to Rebecca Bill Chavez of the Inter-American Dialogue. The situation highlights the canal's vulnerability to climate phenomena and its significant impact on global supply chains, especially for trade between Asia and the Americas.
