Panama Canal Cuts Transit Capacity Amid El Niño Threats
The Panama Canal will reduce daily vessel transits from September as worsening drought conditions linked to an intensifying El Niño force fresh restrictions on the waterway, raising concerns over longer delays, higher costs, and renewed disruption to global trade flows.
The Panama Canal Authority will cut daily transit capacity to 34 vessels from September 3 and then to 32 vessels from September 15, down from the current 36 transits a day, after rainfall across the watershed fell well below historical averages. This marks only the second time the canal has imposed transit restrictions and comes despite a series of water-saving measures introduced following the severe 2023-24 drought that disrupted global trade and sent transit costs soaring.
Water Shortages Worsen as El Niño Intensifies
The authority said rainfall between May and August was 34% below average, while watershed inflows were 44% below normal. Forecasts for what climate scientists increasingly describe as a potentially historic El Niño suggest conditions could deteriorate further over the coming months.
“Current watershed conditions, including below-expected precipitation, require additional action to support the long-term sustainability of transit operations,” the authority said in an advisory to shipping on Thursday.
Global Logistics Networks Already Strained
The restrictions come at a particularly sensitive time for global logistics networks already strained by the Iran war and the resulting disruption to traffic through the Strait of Hormuz. The conflict has increased demand for alternative shipping routes and boosted energy exports from the US Gulf to Asia, placing additional pressure on the canal.
Capacity Cuts and Slot Auction System Overhaul
From September 3, daily capacity at the Neopanamax locks will be reduced to nine slots, while capacity at the older Panamax locks will be capped at 25 slots before falling to 23 slots from September 15. The authority will also overhaul its slot auction system, dividing daily auction capacity into four cargo groups covering gas carriers, dry bulk vessels, containerships and car carriers, and tanker trades.
Waiting Times Climb as Congestion Intensifies
Waiting times are already climbing. Vessels arriving without reservations are facing delays of more than a week, while competition for priority transits has pushed auction prices to unprecedented levels. Earlier this month, a container ship reportedly paid $4m to secure immediate passage, while an LPG carrier paid a record $4.6m to bypass the queue.
Soaring Costs Reflect Surging Demand
The soaring costs reflect surging demand from oil, natural gas, fertiliser and chemical trades rerouting cargoes through Panama as instability in the Middle East reshapes global shipping patterns. Bloomberg recently reported that US LPG exporters, including Chevron-chartered vessels, have begun using ship-to-ship transfer operations off Panama’s Pacific coast to avoid increasingly expensive Neopanamax transits.
Canal Remains Critical Artery for Global Trade
The Panama Canal remains a critical artery for global trade, carrying more than 3% of world seaborne commerce and around 14,000 vessels annually. Reduced capacity during the 2023-24 drought forced many operators to reroute voyages and triggered widespread concern over supply chain resilience.
Outlook Remains Highly Uncertain
The outlook for canal operations remains highly uncertain. In its August 13 update, the US National Oceanic and Atmospheric Administration estimated that El Niño conditions could persist through at least November, with potential impacts on global weather patterns and trade flows.
Original Article: Panama Canal cuts transit capacity as El Niño threatens fresh disruption to global trade — Kuehne-Nagel