The encyclopedia · Strategy & Leadership · Operational decision · 2023
Panama Canal auctioned scarce transit slots as drought cut capacity
With transits slashed by drought, the Panama Canal auctioned released slots — one gas carrier paid a record $3.98M to jump the queue.
Panama Canal Authority
the move
In late 2023 a severe drought — October was the driest month in over 73 years of records — drained the Panama Canal's reservoirs. The Authority cut daily transits from roughly 35 to 30, then 25, with phased cuts to 18 by February 2024, and imposed draft limits, leaving more than a hundred ships waiting, some up to three weeks.
The Authority auctioned slots that came available, and shipping lines bid hard. On November 8, 2023, Japan's Eneos Group paid a record $3.98 million for a transit slot for its LPG carrier Sunny Bright — on top of a roughly $450,000 standard fee — and still secured the first available date a week later.
Grain haulers, with thin margins and late bookings, were squeezed out: some slots went for over $1 million, wait times for bulkers ballooned to around 20 days, and the Baltic Dry Index more than doubled from a month earlier as ships rerouted around South America or via Suez.
why it works
- Auctions put the scarce slots with the cargoes that could pay most.
- Record prices revealed how much the queue was costing shippers.
- Rationing by price beat rationing by waiting line in a crunch.
- The mechanism kept the canal functioning at reduced capacity.
what transfers
When physical capacity is scarce and the queue is the rationing mechanism, an auction allocates slots to the users who value them most — the price carries information, the queue does not.
what came after
The restrictions persisted into 2024 as the dry season extended the drought. Auction prices stayed elevated while transits remained capped, and the episode became a case study in allocating critical infrastructure capacity by price during a supply shock.
references
- Panama Canal Auction Sets Record $4M for Slot as Congestion Grows
- Panama Canal drought to delay grain ships well into 2024
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