Panama Drought: An Ebbing Tide Lifts All Boats' Transit Fees

• Published date: 20 February 2025
• Law Firm: WTW
• Author: Scott St George

Water levels in the Panama Canal have been sitting low since May 2023, which has caused shipping delays and record-setting transit fees. But is this protracted dry spell just bad luck or a sign of things to come?

More than 500 hundred million tons of cargo.¹ Over 14,000 transits. Roughly 4.7% of all goods transported by sea worldwide.² For more than a century, the Panama Canal has served as an essential conduit in global transportation routes. And following the completion of the Third Set of Locks Project in 2016, the canal is now able to accommodate larger ships with double the cargo capacity of its original maximum.³ Despite that expansion, for most of 2023 vessels seeking to enter the canal have been confronted by lengthy queues, extended wait times and extra fees imposed by the Panama Canal Authority. In August, when the traffic jam was at its worst, 154 commercial vessels were waiting for weeks to cross the isthmus.⁴

The root cause of these difficulties is too little water. The Suez Canal in Egypt is built at sea level, and ocean water flows through it freely, but in Panama, the canal is elevated and sealed by locks at both the Pacific and Atlantic entries. Its operations depend on freshwater from the Chagres River in central Panama, which is dammed twice to produce the Gatún and Alajuela reservoirs. Every time a ship crosses the canal, more than 50 million gallons of water are diverted into the locks and then, after the vessel has been lifted, flushed into the ocean. In most years, there is enough runoff to operate the canal and provide water for hydroelectric power and human consumption. But in 2023, Lake Gatún did not recover from its usual early year drawdown⁵ and instead has remained low for the past several months (Figure 1).

Figure 1. Water level in Panama's Lake Gatún for 2023 compared with previous years.
Data source: Panama Canal Authority...