El Niño forecasts add to pressure on Panama Canal as chokepoints squeeze global fleet capacity

The El Niño threat 

The US National Oceanic and Atmospheric Administration (NOAA) has increased its forecast to an 82% probability of an El Niño onset between May and July 2026. Climatologists warn there is a 37% chance of this developing into a severe "super" event by the end of the year, with peak intensity projected between Q4 2026 and Q1 2027 and a 50% probability of a strong or very strong El Niño event during the fourth quarter of this year.

Xclusiv Shipbrokers drew direct parallels to the powerful 2023–24 cycle. During that drought, water levels in Gatún Lake plunged, triggering a 46% collapse in Panamax lock transits. Despite the constriction in transits, global dry cargo seaborne trade still climbed to an all-time record of 5.37Bn tonnes during the drought-affected period, highlighting the market’s underlying resilience, Xclusiv noted. 

Panama Canal beset by dual pressures of climate and conflict 

The strain caused by global events is already mounting at one of shipping’s main shortcuts. Even before the potentially dire dry season impacts bite, the Panama Canal is operating with significant delays. According to shipping association BIMCO, average waiting times for vessels have jumped to 47.9 hours.

This congestion is set to tighten further in the near term. The Panama Canal Authority (ACP) has scheduled vital maintenance on the east lane of its Panamax locks between 9 and 17 June, which will offer 10 fewer slots than usual, while more vessels than usual are hoping to have a slot to transit.

"So far this year, ship transits via the Panama Canal have increased 8% y/y to a daily average of 38, driven by the tanker sector," said BIMCO’s shipping analysis manager Filipe Gouveia.

Mr Gouveia attributes this increase to a geopolitical crisis in the Strait of Hormuz, which has disrupted Persian Gulf exports, tightened global energy supplies, and boosted US energy exports to the Pacific.

An analysis by BRS Shipbrokers highlights that higher-paying segments with strict scheduling demands, such as container and cruise vessels, are increasingly crowding out dry bulkers. Jones Act waivers have also increased US Gulf to US West Coast tanker transits through the canal. The Greek broker reports that this intense competition for slots has forced some desperate operators to pay upwards of US$1M in canal slot auctions, creating a highly restrictive environment for standard dry bulk tonnage.

Pointing to the potential scale of added disruption from the increased climate threat, Mr Gouveia recalled that during the worst point of the 2023–24 El Niño, when "only 22 daily ship transits were allowed at a maximum draught of 13.4 metres, which is 12% below normal levels."

While current water reserves remain historically high following wet conditions, the ACP has warned that El Niño’s lag effect could trigger severe drought-related operational constraints by 2027.

Although active reservoir management will allow the canal to maintain 38 daily transits without restrictions through to 31 December 2026, historical precedents from previous moderate-to-strong cycles show that the worst of the dry spell’s impacts hit after its meteorological onset. Consequently, the waterway authority has already begun drawing up contingency plans and restrictive operational projections for 2027, signalling a highly volatile medium-term outlook for dry bulk operators.

Rerouting and tonne-mile shifts for dry bulk

Weather disruptions and canal bottlenecks are already reshaping major dry bulk routes. Xclusiv projects that an intensely hot Asian summer and a weaker Indian monsoon will lead to domestic hydropower deficits. Xclusiv expects the shortfall to support additional demand for seaborne thermal coal imports, directly favouring Capesize and Kamsarmax tonnage operating in the Pacific basin.

Agricultural flows are also set for major realignments. With Australia’s wheat crop expected to suffer from typical El Niño dry spells, Xclusiv points out that Asian buyers will have to source grain from longer-haul origins like Brazil and Argentina. This shift is expected to expand Kamsarmax and Panamax tonne-mile demand significantly.

US Gulf grain shipments are already bypassing Panama entirely due to delays. Rerouting around the Cape of Good Hope adds up to 50% to the transit duration, stretching a standard 40-day voyage to 60 days and effectively shrinking global fleet capacity.

Orderbooks, S&P markets impacted

These trading realignments are landing in an exceptionally tight supply environment, compounded by a severely restricted newbuilding market. Data from BIMCO indicates that dry bulk newbuilding contracting has hovered near multi-year lows, accounting for a modest 11% of the active global fleet. With global shipyards heavily booked with high-margin container ships, LNG carriers, and a massive surge in tanker orders, dry bulk operators looking for prompt yard slots face long delays.

Xclusiv Shipbrokers’ latest data shows dry bulk contracting has remained soft at 74 vessels, with new orders concentrated in larger segments such as Newcastlemax and Capesize. With limited yard availability and long delivery lead times, buyers are increasingly turning to the second-hand market.

This dynamic has left shipowners in a less pressured position. Forward freight agreements (FFAs) show resilient curves, with Capesize rates remaining firm for the rest of the year. High bunker costs, with Rotterdam very low sulphur fuel oil (VLSFO) trading around US$768 per tonne, have kept fuel efficiency at the top of buyers’ agendas, driving intense interest in second-hand, modern eco-tonnage across the Kamsarmax and Ultramax sectors.

Buyers looking for discounted second-hand tonnage may be disappointed. Years of strong cash flows have allowed owners to pay down debt, keeping values relatively firm. Deleveraged owners face little pressure to sell, with lower cash breakevens supporting asset values, according to Xclusiv. This financial strength means that institutional buyers looking to secure prompt tonnage ahead of the winter period are likely to encounter firmer asset pricing, with owners showing little willingness to discount vessels.