Panama Canal to Reduce Daily Traffic Due to Drought and Low Water Levels, Average Wait for Unscheduled Vessels Exceeds One Week
The Panama Canal will reduce daily traffic due to drought and low water levels, compounded by the Iran war causing ships to reroute, leading to queues and auction prices reaching recent highs. The average wait for unscheduled vessels has exceeded one week, with reports of about 10 days for New Panamax ships at the Pacific entrance; the last peak of El Niño reached 21 days with a backlog of over 150 vessels.
The Canal Authority announced that starting September 3, daily traffic will decrease from 36 vessels to 34, and from September 15, it will further decrease to 32. The quota for New Panamax locks will be reduced from 10 to 9, and for old locks from 26 to 23. Rainfall in the basin from May to August was 34% below historical averages, and inflow to the lake was 44% lower. Draft restrictions have been gradually lowered and may tighten again with the super El Niño.
Auction categories have been divided into gas carriers, dry bulk, container and car carriers, and tankers. The LPG carrier G. Arete from South Korea's SK Shipping paid a record $4.6 million to jump the queue; container ships also saw transactions close to $4 million. The average bid before the war was about $135,000. The U.S. share of LPG exports to Asia has risen from about 55% to about 60%.
After disruptions in the Strait of Hormuz, Gulf-bound oil and gas have taken alternative routes, with some U.S. Gulf LPG rerouted through Panama. To avoid the expensive New Panamax transit, exporters have begun ship-to-ship transfers on the Pacific side or rerouting around Cape Horn and the Magellan Strait, increasing travel distances by thousands of nautical miles. The canal handles about 5% of global shipping and about 40% of U.S. containers.
Buyers are gas and container ships that must meet shipping schedules, while sellers are limited by scarce lock slots. Funds are flowing from freight and demurrage fees to auction premiums and longer route fuel costs. Beneficiaries are cargo owners who can pay high prices for slots; those under pressure include unscheduled ship owners, Asian petrochemical raw materials, and U.S. retail restocking. This is a combination of climate quotas and war rerouting, not a closure of the canal.
Source: Public Information
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When Panama relies on freshwater from the Gatun Lake, a decrease in rainfall turns shipping capacity into auctionable permits. In 2023-2024, there were rehearsals for cutting daily traffic down to over 20 vessels and draft down to 38.5 feet. This time, the difference is that the Strait of Hormuz is also blocked, squeezing the shortest route for U.S. LPG to Asia and alternative routes for Gulf cargo onto the same freshwater staircase. The authority's auction by ship type is to prevent gas carriers from buying all the queue jump rights.
Capital is flowing from spot freight accounts to canal auctions and rerouting fuel. Ship-to-ship transfers break down "transit" into "anchorage swaps," using the rental of two ships to replace a $4.6 million ticket. Rerouting around South America trades time for cash. Those who can write demurrage into long-term contracts can pass the drought tax onto downstream petrochemical plants and supermarket shelves.
Similar to the freight windfall after the Suez blockage in 2021, it is also akin to the re-pricing at Cape of Good Hope during the Red Sea crisis. Shipping is in a dual bottleneck control phase: climate determines freshwater, and war determines oil routes, with both constraints overlapping in Central America. 5% of global trade is being rewritten into queue days and auction records.
The essence is a transfer of pricing power. Freight rates were once priced by distance, now they are priced by lock slots and draft. When freshwater is scarcer than fleets, port states receive cash before shipowners. War rerouting does not create new capacity; it merely shifts demand to another already water-scarce canal.
ABAB News · Cognitive Law
Less freshwater turns the canal into an auction house
When one strait closes, another canal starts queuing
Rerouting consumes fuel, queue jumping consumes cash