Panama Canal transit prices hit record as drought, Iran war drive demand

Prices for transit slots through the Panama Canal have reached record levels as falling water levels and strong demand linked to disruptions caused by the Iran war squeeze shipping capacity on the key trade route.

Daily auctions for August transit slots through the canal’s commonly used locks have averaged about $1.1 million so far this month, more than 16 times the average price recorded during the same period last year, according to data compiled by Argus, The Financial Times reports.

Prices have risen sharply since the U.S. and Israel-led bombardment of Iran began on February 28 and the Strait of Hormuz was closed. The disruption has pushed Asian buyers to source more crude oil and petroleum products from the U.S. Gulf Coast, increasing demand for shipments through the Panama Canal.

At the same time, water levels are falling as an intensifying El Niño develops. The climate pattern, which involves warmer-than-normal Pacific Ocean surface temperatures, can contribute to drought and warmer conditions in some regions.

“The problem right now is the water levels are dropping steadily and it’s not supposed to be doing that from May to December,” said Ross Griffith, head of Americas freight pricing at Argus.

The average price for slots through the canal’s larger locks, which can accommodate bigger vessels, recently reached $2.5 million, the highest recorded for either auction category. Individual auctions have reached as much as $3.78 million for Neopanamax locks and $2.63 million for Panamax locks since July 28.

The Panama Canal Authority introduced new restrictions in July on how deeply vessels can sit in the water, known as their draft. Lower draft limits mean ships must carry less cargo to remain higher in the water, increasing costs for shipping companies and potentially creating longer queues.

Three draft restrictions announced over the past month for Panamax locks will reduce the permitted draft to 47.5 feet by September 3, from the usual 50 feet.

Some 113 vessels were waiting to transit the canal on August 3, either through pre-booked slots or daily auctions, compared with 40 on January 2.

By Sabina Mammadli