In the early hours of a morning directly  off the coast of the City of Veracruz,  

a liquid petroleum gas carrier is at anchor  alongside hundreds of other vessels all  

waiting for their turn to transit the Panama  Canal between the Pacific and Atlantic Ocean. 

Some of the ships out here have been holding  for weeks to make the crossing as the transit  

authority has had to significantly limit how  many large ships it lets through everday. 

But on this particular morning the Japanese fuel  carrier the (charmingly named) Sunny Bright is  

skipping the queue and heading straight through. This is because just 2 hours before, the company  

chartering the vessel (Eneos Holdings) had  bid a record 3.975 million US dollars to  

secure one of the 5 express pass slots on offer  for that day, these special papers allowed this  

otherwise unremarkable ship to steam straight  through like some kind of Disney Fast Pass… 

This was (and still is) the highest  transit fee ever paid for any tolled  

route ever in the history of logistics,  but it also didn’t include everything… 

On top of this record breaking fee, the ship  still needed to pay the regular passage tolls  

which back in 2023 were approximately one and  half a million dollars for a ship of this size… 

These enormous numbers may have been good  in the short term for the nation of Panama,  

but they exposed a rather simple threat… Global shipping (like everything) follows  

the path of least resistance… ships naturally  want to flow from where goods are supplied to  

where they are demanded and back again in the  cheapest, quickest and safest manner possible. 

Week-long waits, multi million dollar transit  fees and even shifting geopolitical trends  

are all completely antithetical to those  goals, and they are combining to undermine  

the very point of what this incredible  infrastructure project was meant to be… 

If you ask almost anybody why  the Panama Canal is important,  

they will say something along the lines of It lets ocean trade routes run through the  

middle of the American Continents rather than  diverting all the way around Cape Horne and  

the treacherous waters of the Drake Passage. Or to put it as simply as possible “it is a  

shortcut”... except that today… that’s  not really the whole story anymore,  

even if it does seem plainly obvious… The idea of cutting this route through the  

narrow strip of land connecting the two continents  was so intuitive that it dates all the way back  

to the 1500s when the Conquistador, Vasco  Nunez De Balboa crossed the isthmus and noted  

in his journal that a canal could be possible. It is quite possibly the only major infrastructure  

project in history to gain the approval of  both a US President and a Holy Roman Emperor… 

but 400 years later when it finally made it  off the drawing board and into completion,  

the trade routes it would be serving  had changed quite significantly. 

Initially dreamt up as a way to quickly ship  the treasures of South American colonies back  

to Europe, it was now primarily serving  traffic shipped back and forth between  

the east and west coast of the United States. Overland railroads were still being developed  

and this Canal was indeed a massively cut  down on the time and danger ships would face  

when sailing between these two economic hubs. But another Century later in the mid 2020s,  

the flow and scale of global trade  has unsurprisingly changed yet again. 

Today the largest source of outbound  freight is coming from the ports of China. 

Last year China’s net exports hit a record high  of 1.2 trillion dollars, and approximately 90%  

of that volume was sent out over the oceans. The largest source of demand for incoming goods  

is on the East Coast of the USA. So if we follow  the general flow, ships want to move from here  

to here with as little resistance as possible. The Panama Canal seems like the obvious route,  

but hopefully most of you will remember  that the world is actually round… 

Going the other way down through the Malacca  Straight, the Suez Canal, past Europe and across  

the Atlantic Ocean is only barely longer  than going directly across the Pacific. 

The significant delays and the rising prices to  transit Panama are increasingly acting like a kink  

in this flow, making this alternative route seem  more and more attractive with every passing year. 

But the benefits don’t stop there, the westward  route passes by cheap fuel in Singapore,  

as well as major shipping ports in India,  and economic centers in Europe. Ships can  

pick up and drop off goods as they sail this  route making it easier to fill larger vessels. 

Oh yeah and this route also  allows for those larger ships. 

The Panama Canal has been expanded in recent  years to keep up with the swelling size of  

container ships and freighters, and this itself  has actually caused serious problems ( more on  

that later) - but even WITH these expansions  the Panama Canal still can’t facilitate a new  

crop of ultra large container ships that  have been produced en-mass since 2015. 

The biggest ships that can fit through the  Canal today top out at an absolute limit of  

14,000 standard containers, but by avoiding  this bottleneck and going around the other  

way shipping companies can use ships that can  carry closer to TWENTY four thousand standard  

containers while requiring roughly the same  crew and only using marginally more fuel. 

All of this means that by taking this route,  shipping companies have more opportunities to  

access more markets, with more efficient ships,  without paying hundreds of thousands of dollars  

to traverse a passage (that could significantly  slow their journey down without notice) and all  

it costs them in return is around a 10%  increase in total distance travelled… 

So with all of this considered in the context  of these modern global trade dynamics, it’s  

less a question of “if the Panama Canal is dying”  and more a question of “how is it still alive?” 

Well fortunately for them there  are still some simple, practical,  

economic forces on their side that  will keep them in business… for now…

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Right now in the world there are two variables  that are keeping the flow of global trade moving  

in just the right way for the Panama Canal. The first is that most East Coast US ports do  

not yet have the capacity to dock the newest Ultra  Large Container ships coming out of Asia. For now,  

these behemoths are primarily traveling  back and forth between Asia and Europe,  

so a container taking this route to America would  need to be reloaded before it crossed the Pacific. 

This is certainly not impossible,  but loading and unloading adds time,  

cost and complexity swinging the path of  least resistance back in Panama’s favour. 

The second variable is that other canal. The Suez Canal doesn’t have the same technical  

limitations that Panama does, it’s wider  and deeper so it can facilitate the world's  

largest ships, and it can handle more than  double the number of ships on any given day. 

On a normal day 75 ships transit the Suez  Canal versus Panama’s current hard limit of 35. 

The Suez also can do more if it really needs  to. In 2023 it set an all time record of  

107 crossings in a single 24 hour period. This extra capacity is good for more than  

just speed and reliability too, it makes  a regular passage significantly cheaper. 

After adding up the (extensive) list of  standardised fees and charges and including  

everything from the transit pass itself all the  way down to tug boat fees, it would cost around  

1.4 million dollars today to get the largest  possible container ship through the Panama Canal,  

although the official toll book is linked in the  sources so feel free to do your own calculations. 

The Suez Canal on the other hand would cost  you around 600 thousand dollars for a single  

passage after rebates, BUT that fee covers a  ship that can haul almost twice as much cargo. 

The Suez is still a bottleneck, but it’s not  nearly as restrictive as Panama… technically…  

except for one thing… it is in one of  the most unstable regions in the world... 

Attacks on ships from pirates as well as regional  conflicts spilling over onto the oceans have made  

ships reconsider the passage entirely opting  instead to sail all the way around Africa (a  

route that carries its own significant risks) At the very least, shipping companies want a  

good alternative, and Panama offers  exactly that, even if under ideal  

circumstances it can’t match the Suez for volume… Now this has given the Panama Canal some reprieve  

from its own problems, but it’s still not a  good position to be in. For such an essential  

component of the nation's economy, counting  on variables that you have no control over,  

isn’t a sustainable long term solution… Unfortunately it’s a hard problem to fix,  

because you have to remember that this modern  engineering marvel… isn’t actually that modern… 

It was built for a time when ships, and trade  looked very different and nobody could comprehend  

just how far we would eventually take things. Since the Panama Canal opened 111 years  

ago the total value of global trade has  multiplied almost a thousand times over. 

The world today is just far more  economically interconnected than  

it ever has been before and ships are the  workhorses connecting most countries in  

the most economically efficient manner possible. The Canal (as well as the nation of Panama itself)  

have clearly benefited from the massive  growth in the industry they serve, but  

over recent decades it’s become clear that they  are not equipped to capture ALL of this growth. 

From the year 1980, the Panama Canal has more  than doubled the amount of freight it handles  

every year from around 200 billion gross tons back  then to just under 500 billion gross tons today. 

However in the same time that freight  through the Canal doubled, TOTAL global  

freight increased by almost 6 times, meaning that  either by choice or by circumstance, Panama is  

seeing a smaller share of the overall traffic. Now partially this is because shipping companies  

are exploring alternative routes, but also  because Panama is running into the fundamental  

limits of how many ships it can handle. If you look at the total tonnage handled  

by the Canal, it’s increased consistently almost  every year since the end of the second world war,  

but if you track the number of  actual ships passing through it,  

that has been declining for over 50 years now. The reason is simply that ships are on average  

getting larger so even with fewer passages  overall the volume has managed to increase. 

You can even see a significant spike  in this volume around 2015 which was  

the result of a massive extension to the  Canal to accommodate far larger ships… 

But this has now put the  passage in a difficult position. 

Purely from a business, revenue maximising point  of view, the canal authority would love to be able  

to lower their transit fees to get a greater  number of larger ships through every year,  

and the infrastructure can clearly handle  more volume because even before the extra  

locks were added there was a time when an  extra 2,000 ships passed through every year. 

But the limitation now… is water… The majority of the Canal actually sits  

above sea level, taking advantage of the damned  up Gatun Lake to cross most of the landmass. 

This works by bringing a  ship into a series of locks. 

At the first level water is let in to equalise  with the second level and then again until it is  

elevated 28 meters to the lake, and then on the  other side the whole process is done in reverse. 

But with each step the water is  slowly being lost to the ocean, 

In general the only way for half a million  tons of ship to end up here in the lake,  

is for half a million tons of water  to end up down here in the ocean. 

Now new water saving features like pumped basins  that were installed with the extension have cut  

down on this water loss, but in general the  total volume of cargo that can pass through  

is directly proportional to the total volume of  rainfall the country receives to refill this lake. 

This means that they have effectively hit  the limit of what this system can carry  

every year and that’s before considering  periodic weather patterns, and the fact  

that this is also the fresh water drinking  supply for most of the country's population. 

Back when the Canal was first constructed  ships were comparatively tiny AND there  

were far fewer of them roaming the  world's oceans. At this time it  

would have been almost inconceivable  that enough ships would pass through  

this Canal that it would materially  impact the water levels on this lake. 

But it has… and if global trade continues to grow  while the canal stays at its natural capacity,  

then inevitably their slice of the overall global  trade pie is going to get smaller and smaller… 

Although the thing is… that by  itself isn’t actually the problem. 

With more ships conducting trade in the  world's oceans going up against a fixed  

supply of passages that can be made, this is  a classic case of demand outstripping supply  

letting Panama charge more for every crossing. As an inevitable result, revenues have increased  

even if total volume hasn’t. (and yes  in extreme circumstances this is how  

companies ended up paying more than 4  million dollars for a one way passage) 

BUT this can only work for so long. Shipping companies know that this  

bottleneck is unlikely to get better (or  cheaper) any time soon, so they are planning  

out alternatives to relieve the pressure. The Panamanian Authority is at the mercy of  

an economic balancing act, they want enough  merchant traffic to keep themselves busy,  

but not SO much that they restrict flow and force  companies to invest into alternative routes… 

Today thanks to better than expected seasonal  rains and the changing of cyclical weather  

patterns, the Canal has capacity for around  36 daily transits, but in 2026 most analysts  

are predicting it will only reach 33. Partially this is thanks to US tariffs  

slowing down import demand but it’s also  being caused by companies avoiding the  

expensive crossing all together where they can… Weather, political bickering and consumer  

preferences may change back and forth in the short  term, but the long term trend is pretty clear. 

We are doing more trade and  we are using bigger ships… the  

Panama Canal has reached its limit on both. In the past ships that were too large to fit  

through the Panama Canal were extremely rare,  and widely considered to be highly compromised  

because of just how important this route was.  Going right up to this limit was so common that  

these ships were simply called Panamax’s. Rather creatively when the Canal was  

extended a decade ago the new limit for  ships sizes were called… Neo-Panamax’s… 

But today the fact that the Canal can’t carry  enough volume means that these even bigger  

ships have gone from being rare one offs,  to the mainline workhorses of global fleets,  

demand has created its own supply which  has in turn created its own demand. 

The Canal won’t die like so many people  have speculated, but if trends continue,  

it simply cannot practically or physically  remain as essential as it once was. 

Of course we have also only been looking at  this whole problem from the perspective of  

economists. The Panama Canal is also  strategically very important for the  

most powerful navy on the planet… But go and watch this video next  

to find out why that’s far from the only  bottleneck that they have to worry about.