A Mediterranean Shipping Company (MSC) container vessel docks at PSA Panama International Terminal near Panama City, Panama before beginning its journey towards the Atlantic Ocean on Friday, March 13, 2025. MSC is the largest shipping company in the world, accounting for 20% of the commercial vessels cruising the globe.
The Panama Canal is owned by the Panamanian government, but operates like a business.
Its number one customer, the United States, is unhappy.
Almost 75% of the cargo passing through the canal is either destined for or originates in the U.S., and President Donald Trump continues to vociferously complain about the canal’s operation.
“American ships are being severely overcharged and not treated fairly in any way, shape, or form. And that includes the United States Navy,” Trump said in his inaugural address on Jan. 20. “And above all, China is operating the Panama Canal. And we didn’t give it to China. We gave it to Panama, and we’re taking it back.”
Despite multiple meetings between diplomats from both countries, Trump hasn’t backed down.
Administration officials point to The Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal, the first of two Torrijos–Carter treaties ratified by the U.S. Senate and signed into law by President Jimmy Carter in 1979.
As part of the treaty, Panama promised to keep the canal open and secure during peace and war for vessels from all nations. The treaty ensured that all transit tolls and charges would be “just, equitable and reasonable” for all ships seeking passage.
Ricaurte Vásquez Morales, the Canal Authority administrator, said Panama has kept its word and that any increase in charges are due to market forces.
“We must have a general application of our tolls and prices,” Vásquez Morales said. “We cannot discriminate, but that does not mean that the market cannot make a decision.”
According to Vásquez Morales, the Canal Authority has three elements to its pricing structure – vessel capacity, fresh water surcharge and supply and demand. And they are applied to every customer transiting the canal.
There is also a formula that ranks ships according to the number of transits they have made and the tolls they have paid, said Jorge Luis Quijano, who was Canal Authority administrator from 2012 to 2019. If more than one ship wants the same transit slot, the vessel with the higher rank wins.
One notable period of high transit tolls was from mid-2023 through early 2024 when El Niño, a pattern of increased temperatures and reduced precipitation, caused a severe drought in Panama.
The drought hit Gatun Lake, which is part of the canal, particularly hard. The lake supplies water for the canal’s lock system and drinking water for over 50% of Panama’s population. During the drought, the Canal Authority gradually reduced the number of ship transits per day through the canal from 38 to 22.
This caused a backlog of up to 160 ships waiting outside the canal for a transit slot to open and dropped the total number of large commercial vessels transiting the canal from 12,638 in 2023 to 9,936 in 2024 – a reduction of 21%.
There are three ways ships get authorization to transit the Panama Canal: reserve a slot, win an auction, or chance it and hope there is an open slot when it arrives.
Just like a restaurant, the Canal Authority prioritizes its customers who make a reservation. But if demand for canal transits greatly exceeds the supply of available slots, like it did during El Niño, the authority opens individual slots to the auction where all the ships available to transit on a certain day bid for a spot.
Those who enter can see everyone else who is bidding. “It is totally transparent,” Quijano said.
Famously, a Japanese vessel paid almost $4 million in November 2023 to skip the ship queue. Then it paid another $400,000 in transit fees to pass through the locks.
“The prices increased not because they were regulated, but because they were market driven,” Vásquez Morales said. “Those decisions were made by cargo owners and shippers, and they paid in the auctions what they considered the value associated with transiting the canal.”
The value of a quick transit is often based on shipping companies’ contracts to deliver their cargo to buyers by a specified date, Quijano said. If they are late, “the penalties can be hefty.”
Sometimes, paying over $4 million to transit the canal can be cheaper than missing a deadline.
“They’re seeking that certainty, and they are willing to pay more for it,” Quijano said.
According to Quijano, Panama’s business strategy for the canal is much different from when it was under U.S. control.
The U.S. benefited economically for 86 years by keeping transit tolls low because it was the canal’s top user, Quijano said. The U.S. used the canal to support its global military strategy, moving Navy ships between the great oceans. Meanwhile, merchant vessels hauled cargo between the U.S.’ East and West coasts.
“The United States didn’t realize from the very beginning that we were not going to be a public utility,” Quijano said.
The current Canal Authority is mandated by Article 316 of Panama’s Constitution to be profitable.
While the Canal Authority is owned by the Panamanian government, it operates like a private company whose business model incorporates principles of supply and demand and whose revenue is generated by transit fees.
The Canal Authority is mostly independent of the Panamanian government, Quijano said. It is neither taxed, nor are its employees paid by government taxes. At the end of each fiscal year, the institution delivers its profit to the national treasury.
In 2024, the Canal Authority made nearly $5 billion and gave half of it to the Panamanian treasury, which was about 4% of Panama’s GDP.
The Canal Authority has its own board of directors, the administrator who functions like a CEO, and its own budget, independent from the Panamanian government.“There’s a definite separation,” Quijano said.
Trump and the ports
Trump announced on March 4 that “my administration will be reclaiming the Panama Canal … just today, a large American Company announced they are buying both ports around the Panama Canal.”
The large American company is BlackRock Inc., an asset manager that owns 40 shipping ports around the world. It is in the process of buying two of the five ports along the Panama Canal from Hong Kong-based CK Hutchison – the Port of Balboa, located at the canal entrance on the Pacific; and the Port of Cristobal, at the Atlantic entrance.
While Trump has expressed his discontent with Panama and China, and the Chinese president in turn has shared his displeasure with the impending purchases, the Canal Authority is taking a “business as usual” approach to its operations.
All of the Panama Canal’s ports are privately owned and operated, said Jorge Barnett Lawton, managing director of the Georgia Tech Panama Logistics Innovation and Research Center.
Besides the ports of Balboa and Cristobal, there is PSA Panama International Terminal on the Pacific side, which is owned by a Singapore-based investment group; and the ports of Colon and Manzanillo on the Atlantic, owned by Taiwanese and U.S. companies, respectively.
All port companies along the canal were granted concessions by Panama’s Maritime Authority to build and operate on Panamanian land, Quijano said. A concession is an agreement that allows a private company to operate on government land so long as the conditions of the agreement are consistently met.
For example, CK Hutchison won a 25-year concession, with automatic renewal, in 1997 when Hong Kong, the company’s home base, was still under the control of the United Kingdom and the canal was controlled by the U.S.
Port favoritism does exist to some extent, but it does not change how the canal operates or who controls the canal, Barnett said. As more shipping line owners get into the port business, their vessels will prioritize those ports to build up their assets.
For example, BlackRock partnered with Terminal Investments Limited (TIL) to buy the two Panama ports from CK Hutchison. TIL is a port operator, but 70% of the company is owned by the Mediterranean Shipping Company (MSC), which is the largest shipping company in the world – accounting for 20% of all merchant vessels sailing the globe.
BlackRock also owns 20% of TIL, and the remaining 10% is owned by Singapore’s Government Investment Corporation.
Though the deal was originally due to be finalized on April 2, an investigation into the agreement by Panama’s comptroller general, Anel Flores, has delayed its closing. Flores said that CK Hutchison owes Panama $1.2 billion under its original contract.
If the BlackRock deal closes, MSC will own over 100 ports in 54 different countries, including eight in the U.S.
Panama’s comptroller is not the only one who is critical of CK Hutchison.
Gathered behind a banner stating “Panama Port Terrorists,” former workers of Panama’s National Port Authority (NPA), which operated the port system between 1976 and 1996, host monthly protests at the entrance of the Port of Balboa.
Jaimie De Orta, a former NPA worker, said that CK Hutchison did not comply with the port privatization process established by Panama law.
“We workers were laid off under the privatization process, but Panama Ports was given an administrative concession, and that’s what, 28 years later, we’re still fighting against,” De Orta said. “We’re 2,276 old men now – many have died.”
Another protester, Cesar Aparicio, said CK Hutchison still owes the NPA workers proper compensation.
“For 28 years, they’ve been laundering money from shares that we, the port workers, were supposed to own,” Aparicio said.
Regardless of where a port company is based, a port’s success depends primarily on whether it can satisfy the logistics needs of its customers, Barnett said.
“It’s built on efficiency,” he said.
Ports provide docking and loading services to shipping lines. A ship transiting the Panama Canal may have 10 ports on its route and will choose the port that can accommodate its needs, Barnett said. If a ship gets behind, it may get behind at all of its port calls.
“And if you get somewhere late, you might not be able to deliver all the cargo,” Barnett said. “Time is money.”
A single cargo vessel costs between $60,000 and $200,00 per day to operate, said Angel Sanchez, the vice president of the Logistics Business Council in Panama. In addition, every hour a ship sits in a port costs between $16,000 to $25,000.
So, each hour of delay costs the shipping company thousands of dollars, which could increase to millions if it cannot deliver some of its cargo. If a port causes them to be late, they will go elsewhere.
Though shipping lines choose which port to use, every ship entering canal waters must receive permission from Panama’s maritime traffic control and be navigated through the canal by a Canal Authority pilot, Quijano said.
Staying punctual keeps customers happy
In a typical 24-hour period, 38 vessels pass through the canal, a 50-mile-long, man-made waterway that was carved from the dense jungle in the early 1900s.
In the morning, vessels travel northward from a port entrance near Panama City, on the Pacific Ocean, to Colon on the Atlantic. In the afternoon, the route changes to southward, with ships traveling the canal from the Atlantic entrance to the Pacific.
High above the waterline, stationed in the bridge of every ship transiting the canal, is a Canal Authority pilot who directs the vessel’s helmsman through the winding waterway’s subtle hazards.
The Panama Canal is the only canal in the world whose pilots take full navigational control of ships as they make their 12- to 14-hour transit through the tropical waterway. They do it to stay punctual.
“We have to maintain 38 vessels per day,” Quijano said. “You need to have pilots that are in control so that there is no interference by the captain on the instructions that he is giving to the helmsman.”
Canal Authority pilots need to keep the constant flow of ships to meet revenue expectations while doing maneuvers that most ship captains are uncomfortable performing, said Capt. Alvaro Moreno, a senior pilot who has worked for the Canal Authority since 1987.
“It takes 13 to 14 years to gain sufficient experience to safely navigate the biggest ships through the canal,” Moreno said.
Contrary to what many might think, the canal is not a straight line connecting the Pacific and Atlantic oceans. Navigating the path efficiently requires an intimate knowledge of topography, both above and below the water’s surface.
There are two main lock systems: the original locks completed in 1914, and the expanded locks completed in 2016.
The original locks permit 960-foot-long, 107-foot-wide ships carrying 2,500 40-foot containers to transit the canal. The new locks tolerate ships that are 1,200 feet long, 168 feet wide and can carry over 7,500 containers.
Sandwiched between these two lock systems is Gatun Lake, a 166-square-mile body of water at 80 feet above sea level. It composes a large portion of the canal.
The most dangerous section is at the canal’s midway point near Gamboa, called Culebra Cut. Culebra means snake in English.
“It is the narrowest part of the canal and was the hardest part to excavate because of the hard rocks,” Moreno said. “You cannot meet big ships in that area … it’s one-way traffic only.”
Allowing Canal Authority pilots to have full navigational control of vessels also means the Canal Authority has full responsibility for the safety of the vessel, Quijano said. “If our pilots make a mistake, then we have to pay … and we’re talking millions of dollars sometimes.”
While keeping a tight schedule allows the Canal Authority’s revenue to grow, it is also necessary to keep its customers happy.
When Moreno steps onto a vessel anchored in the harbor outside of Panama City, he has likely stepped onto a vessel that paid between $15,000 to $300,000 a full year in advance to reserve its transit slot.
According to Barnett, only 10% of the cargo passing through the canal is off-loaded in Panama for distribution in Latin America. The other 90% coming through the canal is transshipment, meaning almost all the cargo transiting the canal is being taken to ports in countries around the world. And they need to get there on time.
Route selection: A maritime money-making venture
“The canal is for connecting markets, not for connecting Panama with the world,” Barnett said.
The Panama Canal serves 170 countries by connecting 1,920 ports via 180 different maritime routes. Another way of saying this is the Panama Canal serves nearly every country in the world.
Roughly 815,000 vessels have transited the Panama Canal since it opened in 1914. In 2024, 5% of the world’s maritime cargo – 210 million long tons (1 long ton equals 2,240 pounds) – passed through the waterway, but it is only one option among four primary maritime trading routes that connect the globe.
Other routes include floating from the Mediterranean to the Red Sea through the Suez Canal, cutting through South America’s Strait of Magellan and navigating around Africa’s Cape of Good Hope.
The U.S. has another option called the land bridge, which connects its shipping ports on the East and West coasts by railroad. However, using the land bridge to haul cargo between ports for international shipment is not the cheapest option.
“If you take all your containers through the land bridge, you’ll pay a third more than going through the Panama Canal,” Quijano said.
According to Quijano, one standard 40-foot container traveling from New York City to Shanghai, China, through the Panama Canal costs roughly $4,500. Using the land bridge, the same container costs $6,000.
Considering that routes connecting Asia to the U.S.’ East Coast account for 48% of the tonnage through the canal, the extra 25% per container adds up fast.
The Panama Canal’s main competitors are the Suez Canal and the land bridge, Quijano said.
“And we have won because of our pricing … effectiveness and reliability,” Quijano said. “We work weekends here … it’s open everyday, it doesn’t close.”
If U.S. shippers decide not to use the land bridge, they have access to the same shipping options as the rest of the world, but the route chosen is dependent on its reliability.
“Transshipment is very competitive in terms of cost and volumes,” Barnett said.
If a vessel in New York City needs to take cargo to Shanghai, the fastest route is through the Panama Canal, which will take about 22 days when cruising at 20 knots, a cargo ship’s average speed. If a ship cannot use this route, as some could not during Panama’s drought, the second fastest option is through the Suez Canal, which takes roughly 26 days.
But all canals have factors that may slow or halt shipping. Cargo carriers have been diverting from the Red Sea since November 2023 because Houthi rebels are attacking commercial vessels in response to Israel’s military action in Gaza.
This leaves shippers with two route options: Africa’s Cape of Good Hope or South America’s Strait of Magellan. Since the trip around the Cape of Good Hope is five days shorter than the Strait of Magellan, 30 days as opposed to 35 days, and has more pleasant weather, most ships point their compass to Africa’s southern tip.
Each day at sea comes with costs. Maritime fuel, called bunker, costs between $500 and $800 per ton, which is 270 gallons. A vessel capable of transiting Panama’s smaller locks burns about 63,000 gallons of fuel per day, which costs about $116,000 at $500/ton. If a ship routes around Africa instead of transiting the Panama Canal, it is going to spend an extra $900,000 in fuel alone.
When comparing the Panama Canal’s transit tolls to routing around Africa, companies often choose Panama because its services save them both time and money.
The canal is not only a maritime shortcut, it is a vital business advantage.
Transporting 5,000 containers of cargo, which can be carried by one vessel, would require 18 trains, 570 airplanes or 5,800 semi-trucks.
Facilitating this link in world trade reaches past logistics and resources – it necessitates healthy international relationships among nations. While Panama is caught in the kerfuffle between the U.S. and China’s deteriorating strategic and economic relationship, Quijano is confident that the Canal Authority is adhering to its international obligations under the Treaty of Neutrality.
“It’s a very short treaty … we have never violated any of the articles,” Quijano said. “We still serve the U.S. and will continue to do that … so we have no choice but to deal with it and get along. It’s our best proof that we’re doing the right thing.”
