Panama Canal Transit Fees Surge Amid Drought and Iran Conflict, Triggering Logistics Alarm

The price of Panama Canal transit permits has skyrocketed to an all-time high in the wake of water level drops caused by a drought and the fallout from the Iran conflict.

The Financial Times (FT) reported on the 11th (local time) that the average auction price for August transit permits granting access to the Panama Canal's major locks reached 1.1 million dollars (approx. 1.55 billion won).

This is more than 16 times higher than the average price during the same period last year.

In particular, transit permit prices for locks used by large vessels have recently surged to an average of 2.5 million dollars (approx. 3.53 billion won).

The soaring price of Panama Canal transit permits is attributed to lowered water levels in the canal.

The Panama Canal uses water from Gatun Lake, an artificial lake, to move ships through.

When the water level of the artificial lake drops, the Panama Canal Authority implements vessel transit restriction measures, which drives up demand for transit permits and pushes prices higher.

Currently, the artificial lake's water level remains lower than usual due to a drought driven by El Niño, which has developed since June of last year.

In particular, forecasts suggest that this year's El Niño could become stronger than normal, potentially lowering water levels even further ahead.

Ross Griffin from data analytics firm Argus warned, "This year's decline in water levels is steeper than in 2023, when severe droughts occurred," adding that "a situation even worse than 2023 could unfold."

Analysts also point out that the fallout from the Iran conflict has contributed to the price increases.

With the Strait of Hormuz blocked, an increasing number of crude oil buyers in Asia are sourcing crude and petroleum products from the United States, with a portion of these shipments being transported through the Panama Canal.

The Panama Canal is the shortest route connecting Asia to the Gulf of Mexico, a major export hub for U.S. energy.

Shipping companies that frequently use the Panama Canal, such as large container ship operators and liquefied petroleum gas (LPG) carriers, typically secure transit permits through advance bookings rather than auctions at costs lower than average auction prices.

However, approximately 30 percent of total canal traffic secures transit permits through daily auctions rather than advance bookings.

(Photo: AP, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.