Panama Canal Cuts Ship Transits Due to El Niño Drought

The Panama Canal Authority will reduce daily ship transits beginning September 4 due to low rainfall linked to the El Niño weather phenomenon. The move aims to conserve water and prevent disruptions to global supply chains.

As of September 15, the number of vessels permitted to transit the canal daily will be reduced from 36 to 32. This decision reverses earlier assurances that no restrictions would be imposed this year. The authority had previously implemented water conservation measures but now faces unprecedented challenges due to El Niño.

The canal relies on freshwater from Lake Gatun and Alajuela lakes to operate its lock system, which is also a primary source of drinking water for Panama City. Extreme drought during past El Niño events forced Panama to impose deep cuts in daily ship transits, highlighting the vulnerability of the waterway to climate-related disruptions.

The anticipated severity of this year's El Niño could further reduce precipitation, threatening both the canal's operations and local water supplies. A severe drought in 2023 cut traffic through the Panama Canal by roughly 36 percent, leading to global supply chain disruptions. Experts warn that similar impacts could occur if current trends continue.

The authority will start capping daily transit slots at 34 vessels starting September 4 and reduce the number to 32 as of September 15. Projections indicate water levels may drop further as El Niño persists, potentially leading to additional restrictions. This echoes measures taken during the 2023-24 drought when daily transits were reduced to as few as 22 ships.

Some ships are already taking long detours via Africa due to the uncertainty and potential delays. For instance, roughly half of gas carriers heading to Asia have chosen the Cape of Good Hope over the Panama Canal this August, marking the highest share in a decade. The tradeoff is significant: a large gas tanker sailing from Houston to Japan takes about 26 days through the canal but 45 days around Africa.

The Panama Canal handles 5% of global maritime trade and about 40% of US container traffic, making it a crucial route for many shippers. The canal is favored by large retailers and energy companies that trade between China and the rest of Asia, and the United States. With the upcoming reduction in daily transits, waiting times for ships trying to get through without reservations will increase.

Nine out of 10 ships using the canal do so with a reservation, while the remaining slots are auctioned off. Before the Iran war, the average winning bid in these auctions was $135,000. However, in April one shipping company paid a record $4 million to use the canal.