More and more ships are waiting at the Panama Canal, priority slots generate millions
A combination of geopolitical tensions and climatic developments is causing waiting times at the Panama Canal to rise enormously. In mid-August, according to Panamanian authorities, more than a hundred cargo ships were anchored off the coast of the Central American country, with waiting times that can reach up to ten days. In the coming months, these are expected to increase further.
More cargo ships are using the waterway, which connects the Atlantic Ocean with the Pacific Ocean, due to unrest in the Middle East. In particular, the number of oil tankers passing through the strait has increased. But at the same time, the canal is struggling with unusual drought, causing the water level to drop and fewer ships being allowed to pass through the canal. A situation expected to worsen in the coming months.
The Panama Canal draws water for the locks, which allow ships to travel from one side to the other, from the nearby Gatun Lake. Since July, the water level in this lake has been falling, while these months normally fall within Panama's rainy season. Currently, the water level in the artificial lake is already 30 centimeters lower than last month, and it is expected to continue to drop.
Measures
For several weeks, the Panama Canal has been taking initial measures: a maximum of 34 ships are allowed to pass through the canal daily, down from 36 ships previously. The larger container ships, the so-called Neopanamax ships, must be less heavily loaded. At the beginning of September, the Panama Canal will announce new measures.
There is great concern looking ahead to the rest of this year, as El Niño makes its appearance. According to meteorologists, this weather phenomenon will bring severe drought to this part of the world, even stronger than in other years. It is a drought that Panama, one of the countries with the highest rainfall in the world, is already cautiously dealing with. The sum for the canal is simple: less rain means a lower water level, a lower water level means less passage and less heavily loaded ships.
It is a situation reminiscent of 2023, when due to drought, also linked to a then El Niño, at the peak only 22 ships were allowed to pass through the canal daily. Ships then waited for weeks off the coast of Panama and shipping companies and other businesses lost millions due to delays in their supply chains.
Bad timing
The situation in Panama comes at an inconvenient time: precisely these months, shipping companies are looking for alternative sea routes to transport their goods. Since October, the daily number of passages through the Panama Canal has increased by 5 percent, an increase attributed to tensions in the Middle East, specifically around the Strait of Hormuz. Although only about 6 percent of global maritime trade passes through the Panama Canal, it is strategically an important waterway, especially for companies on the US East Coast.
While the drought and tensions in the Middle East are only bad news for shipping companies, there is a positive side to the story for the Panama Canal. Daily, the Panama Canal Authority (ACP) organizes auctions where shipping companies can pay a fixed amount to get their container ship priority passage through the canal. Every day, three to five of these 'priority slots' are sold.
Although starting prices at these auctions for smaller cargo ships are set at 15,000 dollars, and for the largest ships at 55,000 dollars, the final prices show that there is desperation among shipping companies.
Record amount
In March, the average amount paid for a slot for a large container ship was nearly 400,000 dollars. Meanwhile, that average amount has risen to 2.5 million dollars. Last month, a shipping company even paid a record amount of 4.6 million dollars to have an empty oil tanker pass through the canal with priority.
Thus, the daily auctions have already brought in sixteen times as much for the Panama Canal in August as last year. Also good news for Panama itself: more than a fifth of the country's state revenues come from the canal. And so even a weather phenomenon like El Niño and geopolitical tensions elsewhere in the world can turn out to be advantageous.