Panama Canal Cuts Transits; US Prices to Rise

The Panama Canal Authority said Thursday it will cut the number of ships crossing the waterway each day, blaming a drought fueled by a historically strong El Niño that has drained the fresh water its locks depend on.

Daily transits drop from 36 to 34 in early September, then to 32 from Sept. 15. AFP, Japan Times and Reuters put the first cut on Sept. 3; CNN reported it starts Sept. 4.

It is only the second time in the canal's 110-year history that the authority has planned to reduce passages, according to the Financial Times.

The US is the canal's biggest customer — about 70% of the goods moving through it are coming to or going from the United States, and roughly 40% of all US-bound container traffic transits the canal, CNN reported.

How dry it is

Cumulative rainfall across the canal watershed since May is 34% below the historical average, the Panama Canal Authority said Thursday.

Panama City has received 75% of its average rainfall since May 1. The western city of David has seen just 60% of its average over the past 90 days.

Water is the canal's fuel: ships are lifted and lowered through locks fed by fresh water from Lake Gatun. During the El Niño droughts of 2023 and 2024, the lake fell to historic lows and daily transits were cut from 36 to 24.

The authority has also set a 48-foot draft limit for September, down from the usual 50 feet, with a further reduction expected soon after. A shallower draft means ships must carry less cargo.

What it costs Americans

Slots are already expensive. The canal runs a reservation system and auctions three to five slots a day to ships without a booking. Average auction prices have climbed from about $100,000 to about $380,000 amid heavy demand tied to the Strait of Hormuz crisis, with one slot going for $4 million, Deputy Administrator Ilya Espino de Marotta said in May.

In early August dozens of vessels were waiting to transit, some for more than a week and one chemical tanker for over a month. Logistics firm Flexport, which had 30 containers on the ship that paid $4 million on Aug. 10, said the backlog at the canal's Pacific end is the worst since May.

Cargo most exposed: active pharmaceutical ingredients used to make medicines including Tylenol and some prescription drugs, which largely come from China and are believed to move through the canal to the US East Coast, said Prashant Yadav of the Council on Foreign Relations. Time-sensitive e-commerce shipments and season-dependent fashion goods are also likely to eat the higher transit fees.

The squeeze does not stop at the water. If holdups get bad, cargo lands at West Coast ports and gets trucked across the country, tightening ground transport and raising prices on goods that never touched the canal. Armenak Shahbazian, president and co-founder of logistics firm Polo 4PL, said importers shipping to the East Coast and Texas are already canceling and looking at Los Angeles and Long Beach instead, and that rail is "overpacked."