Significant Drop in Panama Canal Traffic Due to Drought and Security Concerns

The cost for shippers to avoid traffic jams at the Panama Canal has dropped significantly from record highs as tankers are avoiding the canal altogether. This is due to the ongoing drought, exacerbated by El Niño, which has led to a reduction in daily transit slots to a third of the usual capacity. The loss of fresh water used to operate the canal poses a threat to the country’s drinking water supply, and the drought is expected to last until the start of the rainy season in May or June. As a result, the average auction price for Neopanamax slots, which allow the largest class of tankers to transit the canal, has fallen to $269,000 as of Jan. 11.

The lower demand for the slots is attributed to ships leaving the Panama Canal and using alternative routes, as well as escalating security concerns around the Red Sea and Suez Canal, which have disrupted global shipping. This is reflected in the reduced number of bidders for the Neopanamax slots, leading to a decrease in auction prices. Last November, channel slots were auctioned off for nearly $4 million, indicating a significant drop in cost for shippers. Overall, the Panama Canal is facing challenges due to the drought and reduced transit capacity, which is impacting the shipping industry and global trade.

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