The year 2023 has been a bad year to be a canal user. Between a drought aggravated by El Nino and a shooting war by Houthi terrorists, transit costs and risks have risen steeply.

The two major canals for transoceanic shipping in the world are seeing events affecting their operation which are beyond their control. The Panama Canal is suffering a slowdown in transits due to a drought reducing the water level of Gatun Lake which feeds the canal lock system. The Suez Canal is being affected by hostile Iranian-backed Houthis in Yemen threatening shipping in and out of Israel moving through the Red Sea. They claim to be after ships to and from Israel, but it doesn’t appear that their target identification is very good.

The Suez Canal does not use locks so it can pass more ships per day. While the Panama Canal suffers from drought limiting its throughput, the Suez Canal has no new physical impediments. It is affected by ship operators who elect to bypass the Houthi threat by going around the Cape of Good Hope. Since 17 November, 2023, 55 ships have rerouted around the Cape of Good Hope and 2,128 ships have passed through the Suez Canal according to Reuters.

The Panama Canal auctions-off transit slots on a daily basis. During normal conditions before the drought, there were 36 transits per day. At the start of December, 2023, that rate was at 22 transits per day and the cost of a transit has risen accordingly. As of 15 December, 2023, the transit rate was increased to 24 transits per day through both the Panamax and Neopanamax locks.

The US produces more gasoline than it consumes and most of the excess is exported from the Gulf Coast. For buyers along the Atlantic basin, the US produces the cheapest gasoline. The Gulf Coast also supplies refinery products to the Pacific rim via the Panama Canal.

Within the US, gasoline prices have been low owing to excess inventories. Because of the Panama Canal slowdown, some refineries may have to reduce production to prevent further inventory buildup, potentially resulting in increased prices generally and heating oil in particular.

Panama Canal “slots are prioritized according to highest bid in auction processes, full containers, market and customer rankings,” according to Reuters.