Panama Canal is running low on water, and it's rationing ships to cope: What that means for global shipping

The Panama Canal is facing a severe water shortage, prompting the authority to ration ship traffic and impose stricter loading limits. On September 4, daily transits will be capped at 34 vessels, down from an average of 35 in June and a design capacity of about 40. The cap will further reduce to 32 vessels from September 15, and 32 from September 2.

Neopanamax locks will be limited to nine slots a day, while Panamax locks will be restricted to 25 transits a day, and then 23. The authority has delayed two draft limit cuts scheduled for September and October.

Rainfall in the canal's watershed from May through August has been 34% below the historical average, with inflows to the artificial lakes Gatun and Alajuela 44% below normal. Panama, known for its high rainfall, is experiencing a rainfall shortfall due to a strengthening El Niño pattern. The canal, which handles about 5% of global maritime trade and 40% of US container traffic, is essential for the shortest route between the American east coast, the Gulf of Mexico, and Asia.

The water shortage is particularly concerning for countries like the US, China, Japan, Chile, and South Korea, which are major users of the canal. The Suez Canal, an alternative route, is currently facing renewed attacks from Iran-aligned Houthis in Yemen, causing some carriers to divert back around Africa. Additionally, the Strait of Hormuz has been disrupted due to the US-Israel war against Iran, redirecting shipping traffic through Panama at a time when the canal is experiencing a decline in traffic.

To cope with the situation, the canal authority has considered further restrictions if rains do not improve. Some shippers have resorted to improvising, such as using ship-to-ship transfers to avoid canal transit. Container shipping is also affected by rising freight costs due to the Iran war and congestion at the canal, leading to longer wait times for unbooked crossings.