El Niño and Hormuz Closure Push Panama Canal Transit Fees to a Record

How Panama Canal Auction Prices Reached US$1.1 Million

Daily auction prices for transit slots on the Panama Canal's busiest locks have reached record levels, averaging about US$1.1 million in August so far - more than 16 times the average in the same period last year. Single auctions have gone even higher: the largest Neopanamax locks have averaged US$2.5 million in recent weeks, and individual Neopanamax and Panamax auctions have sold for US$3.78 million and US$2.63 million respectively since 28 July, according to data compiled by Argus.

The surge is being driven by two forces at once. A strong El Niño is lowering water levels in the canal's Gatún Lake, forcing the Panama Canal Authority to reduce vessel draft and potentially limit transit slots. At the same time, the closure of the Strait of Hormuz after the US- and Israel-led bombing of Iran began on 28 February has pushed Asian oil and refined product buyers to source more cargo from the US Gulf Coast, increasing demand for Panama Canal transits.

The canal authority has announced three draft restrictions for Panamax locks in the past month, lowering the permitted draft to 47.5 feet by 3 September from a normal 50 feet. Because draft limits how much load a ship can carry, each vessel must carry less cargo to pass safely. The queue of vessels waiting to transit has already grown from 40 on 2 January to 113 on 3 August.

The authority told the Financial Times that some vessels had recently paid more than US$1 million in auctions to meet market needs, describing the amounts as "temporary market fluctuations" rather than canal-set tariffs. It said the announced draft changes would not reduce daily transit numbers, but that further restrictions could be imposed depending on conditions.

Why Drought and the Hormuz Closure Are Straining the Waterway

Water, Not Just Prices, Is the Immediate Constraint

Verified: Gatún Lake is below its 1965-2022 average, and Argus projects a sharper-than-usual fall before the dry season begins in December. The authority has cut Panamax draft from 50 to 47.5 feet by 3 September. The interpretation is that the canal is facing a capacity squeeze measured in cargo per ship, not simply in transit slots per day. "The problem at this moment is that water levels are falling steadily and that should not be happening between May and December," said Ross Griffith, Argus's head of freight pricing for the Americas. Even if a ship obtains a slot, it may have to leave volume behind.

For shippers, this is more costly than a straightforward fee increase: the physical limit forces more voyages, more fuel and more handling for the same volume, and it widens the gap between those who booked fixed slots earlier and those forced into the auction market.

The Hormuz Closure Fills the Canal With Energy Cargoes

The closure of the Strait of Hormuz removed the normal route for about a fifth of the world's oil, according to the report. Asian buyers have raised purchases of crude and refined products from the US Gulf Coast, and those cargoes frequently travel through the Panama Canal. That is why the auction market is being squeezed from both sides: less water on the supply side and more urgent energy demand on the demand side.

One effect is that spot users - up to 30% of total canal traffic, rather than ships with pre-booked slots - are paying the most extreme prices. Large container ships and LPG carriers normally reserve capacity in advance at lower fixed rates, but any operator needing a last-minute slot is now competing with energy-linked cargoes in auctions.

The Real Divide Is Between Fixed and Auction Users

Only the auction market is setting records; the canal authority says these are not its published tariffs. The commercial split is significant: carriers with reserved slots are insulated from the spikes, while transit buyers in the daily auction bear the full 16-fold year-on-year increase. The authority also has a revenue trade-off: higher auction proceeds can rise even as a drought reduces the total volume of cargo the canal can handle.

What Shippers and Cargo Owners Should Do Before the Dry Season

For cargo owners and logistics managers:

• If you move containerised or LPG cargo through the Neopanamax or Panamax locks, adjust cost forecasts to the August average of US$1.1 million per auction slot - more than 16 times the level a year ago - and to single auctions of up to US$3.78 million since 28 July.
• Secure reserved transit slots at fixed rates rather than relying on daily auctions, especially for repeat movements; up to 30% of canal traffic competes in auctions where the record prices are being set.
• Plan vessel loading for the 3 September Panamax draft limit of 47.5 feet, down from 50 feet, because each ship will have to carry less cargo per transit.
• Build the current queue into lead times: 113 vessels were waiting on 3 August, compared with 40 on 2 January.
• For US Gulf-to-Asia energy cargoes displaced by the Hormuz closure, treat Panama auction costs as a variable in delivered pricing and contract terms until the canal authority's next draft decision is published.

For carriers and forwarders:

• Use pre-booked capacity to protect margins and to offer customers a price advantage over spot auction users.
• Review the canal's projected water-level curve before the December dry season; the authority has said further restrictions are possible even though current draft adjustments do not reduce daily transit numbers.