AMU: Panama Canal congestion could add to supply chain concerns

The 51-mile Panama Canal connects the Pacific to the Caribbean, running south to north. In 2016, the Panama Canal Authority (ACP) completed a 9-year, $5.2 billion expansion, adding a third set of locks to accommodate larger, Neopanamax vessels. This doubled the canal’s capacity to between 36-38 vessels per day. However, the increased capacity has been constrained by lack of rain in the region, which severely restricted transits to as few as 22-24 vessels per day in 2024.

Another forecasted drought could impact transits in late 2026 and early 2027 due to recurring El Nino effects. This natural bottleneck comes as commercial activity is bottlenecking the canal now.

In January, the ACP reported 1,049 transits, an increase of 3.8% over January 2025. An average of 33.84 vessels moved through the canal, so it is pushing to its maximum rated capacity. This assumes the water is there to support full locking operations.

Shipping is backing up now

Vessels seeking passage from the Pacific to the Caribbean are experiencing substantial waiting times. As of March 2, transit to the Atlantic was delayed 19 days. This bottleneck relates to:

• High Asia to US East Coast container movements
• Seasonal fruit exports from South America
• Energy cargo movements

Reports from Mid-Ship Group, a chartering and logistics firm, indicate advanced booking slots for this transit are limited. Competition for available slots is high.

The ACP auctions transit slots to the highest bidder through a sealed bid system. In order to participate, a vessel must have a pending booking for have been waiting at least 10 days. The auctions are divided into three periods:

• Period 1: 15 to 90 days before transit
• Period 2: 8-14 days before transit
• Period 3: 2-7 days before transit

Naturally, the slots auctioned in the Period 3 category go at the highest price, with base prices starting around $200,000 and sometimes going into the millions. The latter would typically be the case for perishable goods or very high value cargoes.

The ACP is only expected to auction two to three slots in Period 2 (8-14 days prior to transit) because carriers have purchased the rest of the availability slots during Period 1 auction

Repercussions for shippers (and aluminum)

Time is money, and shippers are going to see much higher freight costs as a result of the delays.

The new Neopanamax container ships can carry about 13,000 TEU (20-foot equivalent) per voyage. If the auction prices start at $200,000 and go up to $1,00,000, then that cost gets amortized in the freight cost. Another added cost is demurrage paid for the ship to wait for a transit slot to open up. Average daily demurrage rates for the Neopanamax ships can range from $20,000-$50,000. If we assume an average of $35,000 x the recent 19-day delay, that’s another $665,000 in costs that is going to end being paid by shippers. We also have higher fuel surcharges being levied as a result of the US-Iran war.

Auction costs, demurrage, and fuel surcharges could easily push costs up by $125 per container. That’s about $7 per metric ton on a container of aluminum that is worth close to $100,000 at current US prices. For shippers of higher value cargo, this may be a nuisance cost but won’t stop the flow of goods. But those costs will eventually show up in retail prices.

Why this matters

Aluminum coming from Asia often transits into Los Angeles, but there will be some cargo coming into the Gulf Coast and East Coast ports. This bottleneck at the canal will add three weeks’ transit to those movements. We suspect shippers from India will rotate shipments from Vizag westbound rather absorbing these delays, resulting in transits of about 45 days to East Coast ports. Australian aluminum exports may go to Los Angeles and not fight the battle at the canal.

From a macro perspective, exports from China and South Asia to the US East Coast are 45-50 days using the Suez. In less congested periods, China to East Coast via the Panama Canal should be 25-35 days. The bottleneck at the canal will compel those shippers to mimic India and go west. Importers of finished goods are going to have to add 10-15 days to their pipeline. Shippers electing to go to Los Angeles and using land should expect more congestion and delays in that area, as getting containers moved to rail terminals will slow and getting eastbound rail capacity could get tight.