Commercial vessels transiting the Panama Canal are facing sharply higher costs and longer waiting times as disruptions caused by the Iran war coincide with falling water levels linked to the developing El Niño weather pattern.
The impact highlights the growing fragility of global trade, with a container ship reportedly paying around $4 million to secure priority passage through the canal and bypass a growing queue of vessels.
According to Argus Media, ships are currently waiting around 10 days to transit the waterway, marking the largest backlog since May. The Panama Canal is a critical maritime shortcut connecting the Pacific and Atlantic oceans and is widely used by shipping lines to reduce transit times and costs, particularly on trade routes between Asia and the US.
The Panama Canal Authority (ACP) normally allows shipping companies to reserve transit slots for a fixed fee. It also conducts daily auctions through which shipowners can bid for priority passage. Starting bids are around $15,000 for smaller cargo vessels and $55,000 for the largest ships, but prices can rise sharply when demand and congestion increase.
Bloomberg reported that the Seaspan Benefactor, a 10,100-TEU container ship, paid around $4 million for a transit slot. The amount was reportedly more than twice the average bid recorded during the previous seven days.
Middle East Disruptions Push More Ships Towards Panama
The surge in demand for Panama Canal transits is partly linked to the disruption of alternative shipping routes amid the conflict in the Middle East.
Shipping companies have increasingly avoided the Gulf and Red Sea as security risks have intensified around the Strait of Hormuz and Bab al-Mandab. With fewer vessels willing to use these routes, more cargo is being diverted towards alternative maritime corridors, increasing pressure on the Panama Canal.
At the same time, the canal is facing its own climate-related constraints.
Water levels have been falling as the El Niño weather system develops, raising concerns over the canal’s ability to accommodate vessels at normal operating capacity. The ACP has already announced restrictions on vessel draft for late August and early September, limiting how deeply ships can sit in the water.
The authority had also reduced the maximum authorised draft in July for vessels using the Neopanamax locks, the canal’s wider and deeper passage. The move effectively requires some ships to carry lighter cargoes.
The restrictions are linked to water levels in Gatun Lake, the artificial reservoir that supplies the canal. The ACP has said it is prepared to introduce preventive measures based on lessons from the severe drought experienced during the 2023-24 El Niño period.
Shipping companies are now concerned that further deterioration could lead to restrictions on the number of vessels permitted to transit the canal, similar to the measures imposed during the 2023 drought, when severe congestion disrupted maritime traffic.
Canal Traffic Continues to Rise
The pressure comes despite an increase in overall canal traffic. The ACP reported a 5% rise in vessel transits between October and June, averaging around 35 vessels a day.
Cargo volumes also increased during the period, driven particularly by container ships and liquefied petroleum gas carriers.
The situation underscores the vulnerability of global supply chains to disruptions at strategic maritime chokepoints. When capacity at one major route becomes constrained, changes in vessel flows can quickly increase congestion and costs elsewhere.
Europe’s Rhine Faces Similar Water Constraints
The Panama Canal is not the only major trade artery facing disruption from low water levels.
Across Europe, prolonged dry weather has pushed water levels on the Rhine River to record lows. Traders have warned that some cargo movements on the river have become difficult to book, forcing companies to shift freight to more expensive road and rail alternatives.
The Rhine is a major transport corridor for grain, fuel, minerals and industrial goods. Low water levels have forced manufacturers and other shippers to reduce the amount of cargo carried on vessels, adding further pressure to already stretched logistics networks.
Together, the developments at the Panama Canal and along the Rhine demonstrate how geopolitical conflicts and climate-driven disruptions are increasingly converging to reshape global trade routes, shipping costs and supply chain strategies.
