With demand for U.S. crude surging because of the Iran war and canal transit restrictions imposed due to El Niño-driven low water levels, the price of Panama Canal transit slots is climbing sharply. The auction price to move up in the transit queue reached $4 million (about 5.6 billion won).
On the 11th, according to the Financial Times (FT), the auction price for a transit slot to pass the main locks of the Panama Canal has averaged about $1.1 million (about 1.6 billion won) so far this month. That is more than 16 times the average price in the same period last year.
Some ships are said to have paid $4 million to move up in the transit order. Bloomberg said the owner of the container ship "Seaspan Benefactor" paid $4 million in an auction to advance its place in the Panama Canal queue. Typically, ships passing through the Panama Canal pay a set fee via advance reservation, but the Panama Canal Authority also runs auctions that allow vessels to skip the general waiting line and move up in the order.
The price of Panama Canal transit slots has been rising steadily since the outbreak of the Iran war. With the Strait of Hormuz, a critical chokepoint through which one-fifth of global crude flows, closed, Asian buyers increased purchases of crude and refined products from the U.S. Gulf Coast, sharply boosting demand to transit the Panama Canal.
On top of that, as El Niño intensified since June, water levels in the Panama Canal have fallen. In response, the Panama Canal Authority is gradually lowering the maximum allowable draft (the depth of a ship's hull below the waterline) for vessels passing through the locks. Over the past month, three draft restrictions were announced for the Panamax locks, and the maximum allowable draft is set to drop from the usual 50 feet to 47.5 feet through Sept. 3.
When draft limits tighten, ships must reduce cargo loads so they sit higher in the water. In that case, shipping companies and customers face higher transportation expense, and a large number of vessels could crowd the entrance to the roughly 50-mile (about 80 km) Panama Canal while waiting to transit, FT reported. According to Bloomberg, Neo-Panamax ships carrying liquefied petroleum gas (LPG), liquefied natural gas (LNG), crude, and refined petroleum products must wait 10 days to transit the Panama Canal from the Pacific to the Atlantic.
According to commodity price information firm Argus, in recent weeks the auction price for transit slots at the large locks used by big vessels on the Panama Canal has averaged $2.5 million (about 2.5 billion won). Since July 28, in some individual auctions, prices for the Neo-Panamax large lock and the Panamax locks used by most ships have jumped as high as $3.78 million (about 5.3 billion won) and $2.63 million (about 3.7 billion won), respectively.
Ross Griffiths, head of Americas freight rate pricing at Argus, said, "The issue now is that water levels are steadily dropping," adding, "Normally from May to December is not when levels should be falling like this."
Lock maintenance and repair work is also worsening the canal's bottlenecks. Bloomberg reported, "Repair work expected to continue through September is affecting operations at the locks used by Neo-Panamax vessels."
With the Strait of Hormuz closure dragging on and concerns about El Niño-driven low water persisting, Panama Canal transit slot prices are expected to stay elevated for the time being. Argus estimated that the water level of Lake Gatun, the artificial lake that supplies the Panama Canal, is currently below the 1965–2022 average and is likely to fall further over the coming months.
The Panama Canal Authority recently said it is true that some ships that transited the canal paid more than $1 million in auctions to secure slots aligned with their market needs, but explained that this is not the authority's official toll and reflects "temporary market price fluctuations."