The cost of using the Panama Canal has increased significantly in recent years, a situation President Trump has criticized. The canal's operator cites factors such as droughts, investments in upgrades, and high demand as contributing reasons for the rising fees.
Even if President Trump successfully negotiates lower fees with Panama, the impact on American consumers may be minimal, as canal fees represent a small portion of the retail price for most goods. One analysis suggests that using the canal adds only 10 cents to the cost of a coffee maker.
The issue of Panama Canal shipping fees gained prominence after President Trump raised it last year. Alongside cost concerns, U.S. politicians have expressed security worries, particularly regarding China's investments in Panama's infrastructure and the operations of a Hong Kong company at both ends of the canal. Secretary of State Marco Rubio has amplified these security concerns during his recent visit to Panama.
It is important to note that China does not operate the canal; this responsibility lies with the Panama Canal Authority, a Panamanian agency. The United States constructed the canal in the early 20th century and transferred control to Panama in 1999 under a treaty that mandated its neutrality.
President Trump has criticized the 1978 treaty as a mistake and has not ruled out the possibility of military action to reclaim control of the canal. In response, Panamanian President José Raúl Mulino has reiterated that the canal is operated by Panama and will remain under its control.
The Panama Canal is vital for the U.S. economy, providing a shorter route for shipping between the East Coast and Asia, with 40 percent of U.S. container traffic and significant energy exports passing through it. Canal revenues have increased more rapidly than traffic, with tolls and service fees reaching $4.8 billion in the 12 months ending September 2023, a 62 percent rise from five years earlier, while traffic increased by only 2 percent.
In 2023, the average revenue collected per vessel was $341,000, up from $215,000 in 2018, indicating a 59 percent increase. Some of the revenue supports the Panamanian government, which recently received a nearly $2.5 billion contribution, while additional funds are reinvested in the canal’s infrastructure.
Drought conditions have occasionally necessitated a reduction in vessel traffic to conserve water, as the canal's locks consume large amounts of it. A project aimed at creating an alternative water source could cost approximately $1.6 billion.
During challenging times, the canal authority has managed to maintain revenue by capitalizing on reduced traffic, with shippers at times willing to pay millions in auctions for passage slots.
Despite complaints about high prices, industry officials generally believe the fees are appropriate. Oystein Kalleklev, CEO of Flex LNG, stated that while the price can be exorbitant, he believes it is justified.
Should canal fees decrease, the effect on consumers may still be limited. Approximately 70 percent of cargo passing through the canal begins or ends at U.S. ports, which would offer some benefits from lower tolls, but savings may only represent a small fraction of retail costs.
Judah Levine of Freightos estimates that Panama Canal fees contribute around $11 to the price of a French-door refrigerator, which typically retails for over $1,000, and as little as 10 cents for a $40 coffee maker. Shipping a container from East Asia to the East Coast costs about $6,600, with the canal fee making up roughly 4 percent of that total.
According to Levine, canal fees are not generally seen as a primary driver of shipping costs within the industry.