Panama Canal Transits Drop For First Time In A Year Due To High Tolls

Ship traffic through the Panama Canal fell in January, marking the first month-on-month decline in almost a year.

According to the Panama Canal Authority’s latest bulletin, an average of 32.6 vessels per day passed through the waterway, totalling 1,011 ships for the month. This was a decrease from December’s 1,059 transits.

The drop follows a recovery in 2024 after a severe drought between late 2023 and early 2024 that had led to restrictions on canal usage.

However, despite an increase in ship movements last year, demand was still not enough to fill all 36 transit slots available since September. Rising toll costs have forced shippers to opt for alternative, longer trade routes to Asia.

A similar decline occurred in early 2023 when transits fell from 702 ships in January to 662 in February. However, from that point, vessel traffic surged nearly 60% through the remainder of the year.

The decline in transit has impacted canal revenues. For the fiscal year ending in September, toll revenue dropped 5% to $3.18 billion due to drought-related restrictions.

This contrasts with the steady growth recorded between 2020 and 2023 when revenue increased by almost 26% to $3.35 billion.

Apart from economic factors, geopolitical tensions have also worsened the situation at the canal. After taking office for a second term, U.S. President Donald Trump threatened to take over the canal, citing Chinese influence.

The canal was opened by the U.S. in 1914 and was handed over to Panama in 1977. It was jointly controlled by America and Panama for some time, and then the government of Panama took over control of the canal in 1999.

“China’s running the Panama Canal…it was not given to China…But they violated the agreement, and we’re going to take it back, or something very powerful is going to happen.” Trump warned.

U.S. Secretary of State Marco Rubio visited Panama City earlier this month to discuss toll policies and concerns over the growing presence of Chinese businesses near the canal.

Following Rubio’s visit, tensions escalated between the U.S. and Panama over tolls charged to U.S. military vessels. Under a 1977 neutrality treaty, these ships have priority access to the canal but are still required to pay transit fees based on size and type.

U.S State Department officials shared a post on social media claiming that that American government ships would now pass through the canal without paying tolls, a move that could save millions of dollars annually.

In response, President of Panama, Jose Mulino, rejected these claims, accusing the U.S. of spreading “lies and falsehoods.”

Rubio later clarified that no official deal had been made regarding the free passage of the U.S. vessels and criticised the current arrangement, stating that it was unreasonable for U.S. naval vessels to pay tolls for a canal that the U.S. is obligated to protect in times of conflict.

Additionally, Panama’s President has also announced that it has withdrawn from China’s Belt and Road Initiative (BRI), a global infrastructure project.

Mulino confirmed that his government had formally notified Beijing of its decision, following a 90-day process required for withdrawal. He maintained that this decision was made in Panama’s national interest and not due to U.S. pressure.

Rubio welcomed Panama’s withdrawal from the BRI, calling it a positive move in US-Panama relations. Despite this, Mulino stated he was still evaluating Panama’s relationship with China to determine what would best serve the country’s economy and interests.

The U.S. president has repeatedly accused Panama of collecting high tolls for American ships, but Mulino has said that the transit fees- reportedly between $6 to $7 million per year for U.S. government vessels-are standard and do not affect the U.S. economy.

Reference: Reuters

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