Drought conditions attributed to the El Niño weather pattern have led to shipping delays and increased costs at the Panama Canal. On August 10, a container ship paid $4 million at auction to bypass a backlog of vessels, some of which had been waiting for more than a month. The Panama Canal Authority is responding to low water levels by reducing the number of daily transits and limiting how deep ships can sit in the water.
The canal, a 50-mile waterway connecting the Atlantic and Pacific oceans, relies on freshwater from Lake Gatun to operate its lock system. Recent data from the Panama Canal Authority shows rainfall in the canal watershed has been 34% below the historical average since May. This water shortage follows similar drought-driven disruptions during El Niño events in 2023 and 2024, when daily ship transits were reduced from 36 to 24.
To manage declining water levels, the Canal Authority announced a draft limit of 48 feet starting in September, down from the standard 50 feet. A lower draft requires ships to carry less cargo, which Mediterranean Shipping Company (MSC) cited as the reason for increasing its Panama Canal surcharge effective September 12. Furthermore, the number of daily transits will be cut to 34 on September 4 and further reduced to 32 on September 15.
Individual households may notice price increases for goods such as cell phones, computers, and active pharmaceutical ingredients used in medicines like Tylenol. These costs are driven not only by canal surcharges but also by knock-on effects in domestic logistics. When ships reroute to West Coast ports to avoid the canal, demand for U.S. rail and trucking increases, which Armenak Shahbazian of Polo 4PL noted has already resulted in tight trucking capacity and overpacked railways. These logistical shifts can raise prices even for goods that never entered the canal.
Energy markets are also affected, particularly for Asian countries that rely on U.S. petroleum exports moving through the canal. While President Donald Trump issued a 90-day waiver on August 10 allowing foreign-flagged vessels to move energy between U.S. ports, at least 49 of those voyages have used the canal, meaning drought-related delays could impact the delivery of energy products. The Panama Canal Authority is exploring long-term solutions like the Rio Indio reservoir project and a new fuel pipeline, but neither project is currently operational. For now, daily transit reductions will proceed through mid-September as the El Niño pattern is expected to peak between October and December.