Panama Canal cuts ship traffic amid severe El Niño-driven water shortages

The Panama Canal Authority is set to reduce the number of daily ship transits from 36 to 32 starting next month, a significant operational cutback driven by severe water shortages. This decision, announced on June 20, stems from the intensifying El Niño phenomenon, which has drastically reduced rainfall in the canal's watershed.

El Niño's impact is being felt across Central and South America, causing drought in Honduras and heavy rains in Peru. However, for the Panama Canal, the primary consequence is a critical lack of freshwater needed to operate its lock system. The canal relies on reservoirs that have seen their water levels drop significantly due to rainfall being 34% below average between May and August. This has forced the authority to revise its earlier stance of not limiting transits, acknowledging the accelerating rate of water level decline.

The reduced capacity of the Panama Canal, a vital artery for over 3% of global maritime trade, comes at a time of heightened demand. Tensions in the Middle East, particularly following attacks on Iran by the U.S. and Israel, have led to increased shipping traffic through the canal as the Strait of Hormuz faces potential closures. This confluence of factors is already pushing transit prices to record highs, with average costs reaching approximately $1.1 million per ship, a 16-fold increase compared to the previous year.

The Panama Canal Authority is implementing a tiered system for transit slot auctions based on cargo and vessel type, prioritizing larger container ships. They strongly advise users to book slots in advance. Authority administrator Ricaurte Vásquez warned that El Niño could persist longer than anticipated, potentially necessitating further limitations on cargo loads and transit capacity, similar to droughts experienced in 2023 and 2024. The situation poses a long-term threat to the sustainability of both the canal and regional water supplies, underscoring the growing impact of climate change on critical global infrastructure.

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The Panama Canal will make every reasonable effort to announce future adjustments as far in advance as possible, as weather conditions are changing faster than initially anticipated.