Commercial ships using the Panama Canal are facing sharply higher costs as disruption linked to the Iran war and falling water levels associated with this year’s intense El Niño weather system lengthen waits. Ships are now waiting about 10 days to transit the route, the largest backlog since May, according to Argus Media.
A 10,100-TEU container ship, the Seaspan Benefactor, reportedly paid about $4m for a transit slot that allowed it to bypass the queue, Bloomberg reported. The payment was more than twice the average bid during the previous seven days.
How the Panama Canal auction works
The Panama Canal Authority, which manages the waterway linking the Pacific and Atlantic oceans, normally charges shipping companies a flat fee to reserve a transit slot. It also holds daily auctions where shipowners can bid to skip the queue.
Starting bids are about $15,000 for smaller cargo vessels and $55,000 for the largest ships. Prices can rise sharply when congestion or demand is high. The route is particularly valuable to retailers and energy companies trading between Asia and the United States because it generally reduces transport costs and journey times.
Why demand is rising
More shipowners are avoiding the Gulf and the Red Sea as fighting in the Middle East has effectively closed the strait of Hormuz and the Bab al-Mandab, the waterway between the Arabian peninsula and the Horn of Africa. That has increased pressure on alternative routes, including the Panama Canal.
The Financial Times reported that prices on the canal’s busiest shipping lanes have reached record highs. The higher costs come as vessels compete for limited capacity rather than simply paying the usual reservation fee.
Falling water levels could bring further limits
The authority said earlier this month that it would impose draft limits in late August and early September to keep traffic moving. It had already reduced the maximum authorised draft in July for ships using the wider, deeper Neopanamax locks, requiring some vessels to carry lighter cargoes.
The restrictions are based on water levels and projected conditions in Gatun Lake, the artificial reservoir that feeds the canal. The authority said it was ready to introduce preventive measures during El Niño while monitoring weather conditions, drawing on lessons from the 2023–24 event.
Some shipowners are concerned that vessel numbers could also be restricted, as happened in 2023 when drought in Panama caused a lengthy logjam. Between October and June, the authority recorded a 5% increase in transits, averaging 35 a day, with container ships and liquefied petroleum gas carriers driving higher tonnage through the canal.
Low water is affecting other trade routes
The Panama Canal is part of a wider disruption caused by low water levels. Dry weather across Europe has pushed the Rhine to record lows, making some cargo shipments unavailable to book and forcing traders to use more expensive road and rail transport.
Manufacturers have reduced the amount of grain, fuel, minerals and other goods carried on ships along the Rhine, one of Europe’s main inland trade arteries.
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