PANAMA-ENVIRONMENT-CLIMATE-TRANSPORT
The Norway-flagged LPG tanker Nantes (L) and the Liberia-flagged container ship MSC Conakry IV sail through the Panama Canal near the Pedro Miguel Locks in Panama City on September 4, 2026, as a reduction in canal transits linked to the El Niño phenomenon comes into force. Panama has declared an emergency over El Nino, which raises surface temperatures in the central and eastern equatorial Pacific Ocean and causes global changes in winds and rainfall as well as erratic weather conditions.
  • The Panama Canal has capped daily transits at 34 ships since September 3 and will reduce that number to 32 on September 15, as an intensifying El Niño has left rainfall across the canal's watershed about 34% below normal since May.
  • A Panama-flagged gas carrier operated by South Korea's SK Gas paid a record $5.3 million in a late-August auction to bypass the queue — nearly $700,000 more than the previous record set only weeks earlier.
  • The squeeze is compounding a separate, months-long disruption at the Strait of Hormuz, which has been intermittently closed since Iran shut it in response to US-Israeli strikes in February. The disruption has pushed more oil and gas cargo towards the Americas and the Panama route.
  • Grocery staples such as tomatoes and coffee rose sharply this spring, but the latest federal data, covering July, shows that increase easing — even as shipping analysts warn that the new canal costs have not yet fully reached supermarket shelves.

Only 34 ships a day are now allowed to cross the Panama Canal, with that limit falling again to 32 on September 15. The reduction comes at the worst possible time, as vessels normally routed through the blockaded Strait of Hormuz are converging on the same narrow waterway. Two of the world's busiest shipping arteries are effectively constraining traffic at the same time, and freight analysts say the additional cost of moving cargo is already making its way towards supermarket shelves.

The canal restriction is the result of conditions in Panama itself. An intensifying El Niño has left rainfall across the watershed that feeds the canal's reservoirs about 34% below its historical average since May, forcing canal operators to conserve fresh water by turning ships away. At the same time, a Middle East war has choked off a large share of Gulf oil exports. Shippers seeking alternative routes have therefore made Panama one of the tightest bottlenecks in global trade.

Two bottlenecks, one waterway

The Panama Canal now carries roughly 5% of global maritime trade, double the 2.5% share it handled in 2024. About 70% of that traffic either begins or ends in the United States. The waterway transported an estimated $270 billion worth of goods in 2024 alone, and volumes this year are running even higher.

That capacity is shrinking because of drought. Canal authorities issued back-to-back advisories in late August ordering the cuts — first to 34 vessels a day and then to 32 — while also reducing the maximum draft allowed for the largest ships. This means that even vessels which do make the crossing are carrying lighter loads.

A war half a world away has rerouted ships to Panama

The drought is coinciding with the fallout from a conflict that began when the United States and Israel struck Iranian targets on February 28, prompting Iran to shut the Strait of Hormuz. Under normal conditions, the passage carries close to one-fifth of the world's oil supply. The strait has not remained uniformly closed since then — a diplomatic framework reached in mid-June briefly restored a trickle of traffic — but fighting resumed in July. By early September, the corridor was once again seeing only a small fraction of its pre-war shipping traffic.

With Gulf producers no longer able to ship nearly as much crude through Hormuz as before the conflict, buyers have increasingly turned to the Americas. US crude exports rose 46% year-on-year between April and June 2026, reaching a record 61.6 million metric tonnes — close to 5 million barrels a day. Much of that oil is now being funnelled through the Panama route.

A record-breaking ticket to skip the queue

The additional demand has fuelled a bidding war for the canal's limited last-minute slots. The Panama-flagged liquefied petroleum gas carrier G. Spirit secured priority passage for $5.3 million in a late-August auction — an all-time high that exceeded a $4.6 million bid made by a sister vessel only weeks earlier. The winning bid came from SK Gas, a South Korean energy trading company whose ship would otherwise have faced an 11-day wait for an available booking slot.

Slot auction prices averaged around $55,000 between last October and February. Canal officials describe the recent increase as roughly threefold, although some trade publications tracking auctions for the largest ships have reported much steeper rises.

What shipping analysts expect next

BIMCO chief shipping analyst Niels Rasmussen said the tighter caps would push some vessels on to longer and more expensive routes around Africa's Cape of Good Hope. The combination of reduced capacity and higher auction prices is "likely to push freight rates higher", he said. Container cargo moving between Asia and the US East Coast, along with LPG shipments from the Gulf Coast, is particularly exposed. BIMCO is the Baltic and International Maritime Council.

Grocery maths: what has changed for households

Delays at the Panama Canal translate into higher shipping costs, which eventually appear in the price of imported goods — but the timing is important. Grocery staples popular among Latino households rose sharply earlier this year. Government data covering mid-May showed tomatoes up by as much as 39% and coffee by 18.5% from a year earlier, increasing a family's weekly grocery basket from roughly $120 to about $145. The spring surge was driven largely by a 17% tariff on Mexican tomatoes and a diesel price increase of as much as 60% linked to the Hormuz conflict.

The picture has since eased. The latest US Department of Agriculture data, covering July, showed retail tomato prices up by about 13% year-on-year and overall grocery food prices up by only 2.7% — both well below the spring peak. The price of coffee per pound actually edged down slightly between June and July, according to Labor Department figures. Economists caution that this does not mean the Panama Canal squeeze is harmless; rather, its effects have not yet fully arrived. Higher costs involved in producing, storing and transporting food typically take three to six months to reach supermarket shelves, and much of what shoppers have felt so far predates this latest round of shipping disruptions.

Benjamin Gedan, director of the Latin America programme at the Stimson Center, told CNN that canal bottlenecks have effects that are "significant through supply chains and all the way to consumer prices". That warning applies as much to the months ahead as it does to what has already happened.

Bananas, the peso and a wider Latin American squeeze

The disruption is affecting communities with links across the hemisphere in both directions. Colombia's national banana growers' association, Augura, expects the country's exports to fall by at least 5% compared with last year. It cited higher fertiliser costs linked to the Middle East conflict, a stronger peso squeezing growers' margins, and a shortage of available cargo space that has forced older, less efficient ships back into service.

No quick fix in sight

Xeneta analyst Peter Sand expects the disruption to continue compounding, telling reporters that the situation would "get worse from a couple of months ago and well into 2027". With the Hormuz conflict unresolved and forecasters assigning a high probability to El Niño intensifying through the rest of the year, pressure on both chokepoints — and eventually on grocery bills — shows no sign of easing soon.

Originally published on Latin Times