Panama canal fees soar due to Iran war and El Niño as ship ‘pays $4m to jump queue’

Panama Canal cuts daily transits as El Niño drought and Iran war drive up shipping costs

The Panama Canal Authority (ACP) announced on Thursday that it will reduce the number of vessels allowed through the waterway each day, citing lower-than-expected rainfall and drought conditions linked to the El Niño weather phenomenon. The cuts will be phased in from September 3, when daily transits will drop from 36 to 34, and then to 32 from September 15.

The decision comes as the canal — which handles about 5% of global maritime trade, a figure reported across multiple outlets — faces one of its most severe water shortages in recent years. According to Deutsche Welle, rainfall in Panama between May and August was about 34% below the historical average, a stark indicator of the drought gripping a country that is normally one of the wettest on Earth.

Water conservation and long-term sustainability

The ACP said the measures were necessary to preserve service reliability and safeguard water resources for human consumption. In a statement quoted by both the BBC and France 24, the authority noted that "lower than forecast rainfall in the canal's watershed" required steps to bolster the "long-term sustainability" of the waterway. The canal, which is fed by rainwater collected in artificial lakes — most notably Gatun Lake, as reported by Al Jazeera — relies on a lock system to lift and lower vessels between the Pacific and Atlantic oceans.

The authority has already implemented water conservation measures, including lowering the maximum draft allowed for the largest ships, a move first reported by France 24 and later detailed by The Guardian. In July, the ACP cut the maximum authorised draft for vessels using its Neopanamax locks, forcing them to carry lighter cargoes.

El Niño and climate change

The drought is attributed to El Niño, a naturally occurring climate pattern characterised by unusually warm ocean surface temperatures in the central and eastern Pacific, as explained by Deutsche Welle. This year's El Niño is expected to be particularly strong, with scientists predicting it could rank among the largest such events since records began in 1950. The effects are being amplified by human-caused climate change, which several outlets noted has intensified the warming of the Pacific.

Al Jazeera reported that the previous El Niño, in 2023, contributed to a severe drought that cut canal traffic by roughly 36%, causing significant disruptions to global supply chains. The BBC noted that in 2023, after Panama experienced its driest October since 1950, the ACP cut the number of vessels using the canal.

Rising costs and queue-jumping auctions

While the ACP's transit caps are the latest operational adjustment, they come amid a broader surge in shipping costs driven by the convergence of two factors: the El Niño drought and the Iran war. According to The Guardian, commercial ships are facing significantly higher costs as they wait longer to transit the canal. Ships are currently waiting about 10 days, the largest backlog since May, according to data from Argus Media.

In a striking illustration of the congestion, a container ship reportedly paid about $4 million (£3 million) to jump the queue. The Guardian, citing Bloomberg, identified the vessel as the Seaspan Benefactor, a 10,100 TEU ship. The payment was more than double the average auction bid over the previous seven days.

The ACP runs daily auctions that allow shipowners to bid for slots to skip the queue. Starting bids are about $15,000 for smaller cargo vessels and $55,000 for the largest ships, but prices can escalate sharply during periods of heavy congestion or high demand, The Guardian reported. The buyer's willingness to pay such a premium reflects the value of avoiding delays, especially as shipping routes through the Gulf and the Red Sea have been disrupted by fighting in the Middle East, effectively closing the Strait of Hormuz and the Bab al-Mandab.

The Financial Times, cited by The Guardian, reported that prices to travel in the canal's busiest lanes have hit record highs.

Broader impact on global trade

The Panama Canal is a crucial artery for international commerce, handling about 5% of global maritime trade and a significant share of US container traffic — France 24 put that figure at around 40%. It is also a major source of income for Panama, generating approximately $3 billion (£2.2 billion) a year, as reported by the BBC.

Beyond the canal, the current drought is affecting other regions. France 24 noted that the government of Honduras placed 80% of that country on drought alert on Wednesday. In Europe, a prolonged dry spell has led to record low water levels on the Rhine, forcing traders to reduce cargo loads and turn to road and rail alternatives, according to The Guardian.

Outlook

The ACP's decision marks a reversal from its earlier stance. As Al Jazeera reported, officials told Reuters in May that they had no plans to limit crossings this year, citing water conservation measures imposed in 2023. The new caps will be closely watched by shipping companies, some of whom are concerned about a repeat of the 2023 logjam when the canal operator slashed daily transits from 38 to 22, as reported by Deutsche Welle.

With the El Niño expected to intensify in the coming months, the pressure on the canal's water resources is likely to persist, keeping shipping costs elevated and testing the resilience of global supply chains.