The Panama Canal is rationing water again. It has ordered three cuts to how deep ships can load, the deepest taking effect in mid-August, and shut down the hydroelectric plant at its own dam to keep the reservoir full. Last week it also trimmed how many ships can book a crossing each day.
Behind those moves is a forecast. NOAA gives this El Niño an 81% chance of ranking among the strongest since 1950, and Deutsche Bank has called it "a multi-channel supply shock" that could strain farming, power, shipping, and trade at once. In 2023, drought cut the canal's daily crossings by a third and pushed one gas carrier into a record auction bid just to jump the line.
But the forecast cannot tell you how bad it will get.
The strongest El Niño ever measured, in 2015, barely touched the canal, while the weaker one that followed in 2023 caused its worst disruption in decades. The difference came down to rainfall over one watershed, which nobody can predict months out.
So which will this one be? And how can you prepare?
I went through the last crisis, the current forecast data, and what shippers are doing about it now. Here is what I found for each major route.
What's inside
How strong is this El Niño?
Every route, ranked by risk
Asia to the East Coast: the exposed lane
Asia to the West Coast: the crowded backup
Cold chain and farm cargo: the surprise lanes
What shippers are doing now
How to prepare
What to keep an eye on
How strong is this El Niño?
El Niño is a stretch of unusually warm water in the Pacific that shifts rain patterns worldwide for a year or more, and scientists grade it by how warm that water gets. Only four events since 1950 have reached the "very strong" tier. This one has an 81% chance of joining them: its main gauge read +2.1°C in mid-July, and a second gauge off Peru was higher still. Both running that high at once is rare.
The two most recent big events went in opposite directions:
2015-16 was the strongest El Niño ever recorded, at +2.75°C. It was expected to soak California and ruin Peru's farms. Neither happened. The canal managed with a minor draft limit affecting fewer than one in five ships. The USDA titled its report on Peru "More of a Mite than a Godzilla."
2023-24 was weaker, at +2.06°C, and caused the worst canal disruption in decades.
NOAA says as much in its own bulletin: "Even the strongest El Niño events do not lead to the typical impact everywhere."
Every route, ranked by risk
El Niño reaches freight through water: too little of it in Panama and the Amazon, too much of it in California and on the lower Mississippi.
Route by route:
Asia to the US East Coast, all-water through Panama: the most exposed lane. Surcharges and lighter loads this fall, and the real squeeze risk arrives in early 2027, exactly when 2027 contracts get negotiated.
Asia to the US West Coast, plus rail east: fine this fall, crowded and storm-exposed in the first quarter. It absorbs everyone's Panama contingency at the same time, and El Niño winters break California rail and roads in January-March.
South America cold chain: the ships will be there; the fruit may not. The last El Niño cut reefer rates instead of raising them. The strain falls on sourcing.
US Gulf grain exports: exposed in the October-February export season if canal slots tighten. The proven fix is swinging exports to the Pacific Northwest.
Brazil grain through the Amazon: low-water surcharges likely if the 2024 drought pattern repeats, pushing volume back to the southern ports.
Mississippi barge and the Gulf: flooding is the risk. El Niño raises water on the lower river and usually calms the hurricane season, though 2023 broke that rule.
Asia to the East Coast: the most exposed lane
This lane runs through the Panama Canal, which touches about 40% of US container traffic. The canal is a freshwater machine: every ship that crosses is lifted and lowered by water drained from Gatún Lake, millions of gallons per transit, released into the sea. Rain refills the lake. When rain falls short, the canal rations capacity, taking lighter ships first and fewer ships if it gets worse.
The draft limit for the largest ships steps down to 48.5 feet in mid-August, so those vessels carry less even though the same number of ships cross. The booking trim was modest, 36 daily slots down to 34, and it followed seven straight weeks of weak rain. Water conservation has been running since late 2025.
The lake explains the urgency. Gatún stood at 84.65 feet in late July, about five feet above the same date in 2023, thanks to an unusually wet start to the year. But the lake should be filling right now, and instead it is draining. The canal's own projection has it near 83.7 feet by late September, at a point in the year when it would normally be climbing toward 87 or 88.
For now, the squeeze shows up as cost: lighter ships and surcharges, while everything keeps moving.
Why 2027 is the year to watch
The canal's worst year tends to arrive the year after the El Niño.
Panama's dry season runs January through May, when the canal lives off water stored the previous fall, and a strong El Niño weakens exactly those rains. An event peaking in late 2026 drains the reservoir for the 2027 dry season. That is why the last crisis peaked in its second year.
The authority says its plans for 2027 are already in development.
Shippers negotiate their 2027 ocean contracts between January and April, exactly when the canal would be tightest, so any pricing leverage the drought creates arrives during negotiations. And no fix comes in time: the long-term water solution, the Rio Indio reservoir, is a six-year build that has not broken ground.
A second canal crisis would also cost more than the last one.
The Suez detour is gone, ship fuel runs double its pre-war price, and the canal's slot auctions already average about $385,000 on demand from energy shippers avoiding the Strait of Hormuz, nearly triple the level the 2023 crisis started from. Container lines would be bidding against gas cargoes that can absorb far higher costs.
Hapag-Lloyd is not waiting: it has added a Panama surcharge on Asia-to-North America cargo from mid-August. One factor limits the damage: a record wave of new ships is entering the fleet, and Drewry expects average rates to fall about 17% this year. So even a real crisis likely means volatile surcharges rather than a 2021-style rate spike.
The realistic range from here:
Most likely: restrictions stay on draft plus the small slot cuts already made. Ships load lighter, shippers absorb surcharges, cargo keeps moving.
Severe: a dry fall forces deeper slot cuts in early 2027, repeating the 2023 sequence of draft first, then slots.
Worst case: a full repeat of 2023-24, which the canal's five-foot water buffer pushes toward spring 2027 rather than this winter.
What the last squeeze looked like
Daily crossings fell from about 37 to 24, with a published plan to cut to 18 before rains improved. The maximum draft dropped from 50 feet to 44, forcing ships to sail lighter. About 135 vessels waited at the entrances at the peak, and one gas carrier paid a record $3.98M at auction for a single crossing, then still waited a week.
Start to finish, the restrictions ran about 13 months.
A study by World Weather Attribution later confirmed the drought was driven by El Niño, made worse by the canal's growing water use. That is the chain the current forecast could repeat.
Who paid what:
Gas and grain shippers paid the most. They rely on spot bookings, so they faced the auctions and the queues. That is where the $3.98M slot and the week-long waits happened.
Container lines and retailers were mostly protected. Ocean carriers hold long-standing priority booking slots, so container services kept moving, and the crisis barely registered on retail earnings calls.
Everyone paid through rates. The Panama squeeze alone pushed Asia-to-East-Coast prices up about 23% by December 2023. When Houthi attacks closed the Red Sea that same month, adding a second blocked route, prices roughly doubled within weeks, and one China-to-West-Coast index jumped 73% in three days as cargo rushed toward Pacific ports.
The moves that worked
The crisis split shippers into those with a plan and those improvising.
Four moves separated the winners.
Alternate routing. CHS, the largest US farm cooperative, ships about 350 grain vessels a year, a third through the canal. When it clogged, CHS shifted exports from Gulf terminals to its Pacific Northwest facilities, cutting the run to China from about 30 days to 15-20, per the company's own account. "Our customers in Colombia and Costa Rica got the corn they needed and our customers in China got the sorghum and soybeans they needed," corn trader Neil Johnke said.
An early decision, held. Cheniere, the largest US LNG exporter, concluded in July 2023, before conditions worsened, that the canal was not worth the wait. "We use the canal when it is economical to do so, right now it is not," COO Corey Grindal said, and cargoes went the long way around Africa. A colleague described the result: "I sleep better at night knowing that I am going around the cape or Suez and not waiting in line."
Paying for certainty. Japan's Eneos was the buyer behind that record bid, choosing the cost over the queue. Avance Gas averaged $844,000 per slot by August 2023 before giving up and rerouting its fleet. Shippers overall spent $230M on the auctions within months, per Fortune.
Capacity secured in advance. Refrigerated-cargo lines Seatrade and Cool Carriers held pre-booked slots and kept weekly services on schedule, while two banana vessels chartered on the spot market waited ten days in the queue. Maersk split its Oceania-East Coast service in two and moved containers across the isthmus on the Panama Canal Railway, holding its schedule without bidding for slots.
Each of the four decided before the queue formed. The vessels caught unprepared paid for it. Evergreen's Ever Max, the largest ship to attempt the canal, had to remove 1,400 containers at the entrance to meet the draft limit. One gas carrier gave up and sailed around the southern tip of South America.
Asia to the West Coast: the crowded backup
When Panama tightens, this is where the cargo goes.
In February 2024, Port of Los Angeles volumes ran 60% above the prior year as importers shifted cargo toward alternate gateways. "Importers and exporters are telling me more so than ever, they don't want to be the last people to shift cargo to another gateway should market conditions change," the port's executive director, Gene Seroka, said at the time.
Costco told investors its delays ran two to three weeks but were "mostly now planned for," with contracts placed and routings changed in advance.
The lane will be fine this fall. The complications will likely arrive later:
At the Asian end: typhoons through November. El Niño years produce fewer western Pacific storms, but the ones that form last longer and curve toward Taiwan, Shanghai, and Japan. In September 2023, Super Typhoon Saola closed Hong Kong and much of the Pearl River Delta for about two days.
At the US end: California storms, January through March. An El Niño winter pushes the storm track into California, exactly where this lane's rail legs run. In January 2024, a rain-soaked hillside collapsed onto the main rail line between Los Angeles and San Diego, closing it for about six weeks and limiting freight to a seven-hour overnight window. The 1997-98 event closed I-5 in both directions north of Los Angeles and washed out a rail bridge, and February 2024 brought Los Angeles 8.51 inches of rain in three days and 520 mudslides.
The warning time is short. Atmospheric-river forecasts give about three weeks of notice at most. A Panama squeeze and a California storm can break a shipper's plan A and plan B in the same month.
The one benefit: a milder north. The 2023-24 El Niño winter was the warmest on record for the Lower 48, which eased conditions for Chicago-area rail and northern trucking.
The backup works under two conditions: space booked before everyone else makes the same move, and a second option behind it, because its storm season overlaps the canal's dry season almost exactly.
Cold chain and farm cargo: the surprise lanes
On these lanes the weather hits the cargo before it hits the freight rate.
South America cold chain: the ships will be there; the fruit may not. El Niño heat damaged Peru's crops in 2023, and the intuitive bet was higher refrigerated rates. The opposite happened: lost crops meant less cargo, and Drewry's reefer index fell 37%. The real strain was sourcing replacement fruit from Mexico, Morocco, and southern Africa. For importers, that makes sourcing the exposure to plan around.
US Gulf grain: the calendar is the problem. The export season to Asia runs October through February, overlapping the canal's tightening window. In the last crisis, grain shippers relying on spot bookings faced the worst queues. CHS's Pacific Northwest swing is the proven answer, and it requires terminal access arranged well before harvest.
Brazil grain through the Amazon: watch the river. When Amazon tributaries hit their lowest levels in over a century in 2024, carriers including Maersk, MSC, and CMA CGM applied low-water surcharges, and grain moved back toward the southern ports of Santos and Paranaguá. A repeat this fall follows the same script.
Mississippi barge and the Gulf. El Niño is linked to higher water on the lower Mississippi, so the risk this time is flooding. The barge-stranding droughts of 2022 came from La Niña, the opposite pattern. The Atlantic behaves similarly: El Niño usually suppresses hurricanes, though 2023 broke that rule with the fourth-most named storms since 1950 because the ocean was unusually warm.
What shippers are doing now
Preparation so far is concentrated among logistics providers and insurers rather than cargo owners.
Forwarders: Flexport's mid-July update advises clients to secure capacity and equipment now for August and September cargo and avoid commitments past September. Kuehne+Nagel's advisory recommends reviewing routing flexibility, inventory buffers, booking lead times, and carrier diversification "earlier than usual."
Gas shippers: charterers paid $2.1M and $1.5M for canal slots this spring, per Riviera, and LNG transits are still about 85% below pre-drought levels because the biggest exporters left in 2023 and never came back.
Retailers: none has publicly connected peak-season planning to El Niño. The National Retail Federation projects a record 2.47 million containers for July but attributes the surge to importers moving ahead of August tariffs; El Niño does not appear in the release. One side effect works in retailers' favor: holiday inventory is reaching shore early, ahead of the canal's higher-risk window.
How to prepare
The playbook from the last crisis starts with booking early. Vessels holding reserved slots sailed through the worst of 2023 while spot bookings waited weeks, so lock peak-season space before the October-December window. From there:
Add a third routing option. The West Coast is the obvious fallback, and it carries its own storm risk from January through March. A real plan has a third leg: alternate gateways, transloading, or an overland move like the isthmus railway Maersk used in 2024.
Put protection in 2027 contracts. The crunch window and contract season overlap, so negotiate surcharge caps and exit terms into any all-water East Coast deal for 2027.
Buffer what cannot be late. Extra inventory on canal-dependent goods is cheap insurance against the spot rates a squeeze would bring.
What to keep an eye on
The last crisis was preceded by measurable warning signs and they appeared in a predictable order.
Auction prices moved first. Slot fees climbed months before the 2023 transit cuts. Avance Gas was paying $844,000 per slot a full quarter before the advisory that made headlines.
The type of advisory shows the stage. Draft cuts have come with about a month's notice and only reduce load size. The 2023 advisory that cut transit slots took effect in four days. A draft notice is a warning; a slot notice is the event itself. This week's two-slot trim is the first entry on that side, and a small one.
The lake level is the deciding number. The canal posts Gatún's level daily, currently projected near 83.7 feet by late September against a normal 87 to 88. A continued decline through the fall rains would end the calm scenario.
The rate gap matters more than the headline rate. Asia-East Coast prices are holding about $1,600 per container above West Coast prices even as the broader market falls, per Drewry's index. A widening gap indicates the canal is being priced in.
NOAA's next update arrives the same week the deepest draft cut takes effect, in mid-August.
After that the calendar does the work: the event peaks into December, the dry season opens in January, and the 2027 contracts get signed through April. The last time a strong El Niño met the canal, the worst of it came a year later.
That timing is what puts the risk inside bid season.
