A decline in transit capacity at the Panama Canal due to drought has pushed the fees paid by ships for canal reservations to record levels. South Korean energy company SK Gas paid $5.3 million in an auction to secure a reservation allowing its LPG carrier “G. Spirit” to pass through the canal without waiting. The payment marked the highest fee ever paid for a single transit reservation at the Panama Canal.
Record fee broken for the second time in a month
According to Bloomberg, SK Gas paid $5.3 million for its vessel, which is scheduled to transit the Panama Canal on September 1. Without the payment, the vessel would still have been able to pass through the canal, but it could have faced a waiting period of up to 11 days due to congestion.
The payment marks the second record for Panama Canal transit reservations to be broken within a short period. Earlier this month, South Korean company SK Shipping paid $4.6 million for a reservation for its LPG carrier “G. Arete.”
Drought reduces canal capacity
The main factor behind the record-high transit fees is the severe drought intensified by the effects of El Niño. Falling freshwater levels needed to operate the canal have forced authorities to restrict vessel traffic.
The Panama Canal Authority has lowered the maximum allowable draft, which affects the amount of cargo ships can carry. Authorities also plan to reduce the number of vessels permitted to transit the canal each day starting September 3.
Limited capacity drives up auction prices
Despite the decline in the canal’s capacity, demand from vessels seeking to use the Panama Canal has remained high, increasing competition in transit reservation auctions. Rising demand has prompted companies to offer millions of dollars to avoid lengthy waiting times.
Hormuz Strait crisis also plays a role
The impact of the conflict in the Strait of Hormuz on energy trade has also contributed to the congestion affecting LPG shipments through the Panama Canal.
Developments in the Strait of Hormuz have reduced energy shipments from the Persian Gulf to Asia, pushing up LPG prices. These changes in energy transportation have further increased pressure on vessels seeking to use the Panama Canal.
