Most of the time, the Panama Canal is infrastructure you don't think about. Goods leave a factory in Vietnam, arrive at a port in Los Angeles or Savannah, and end up on a shelf or in a hospital somewhere in the Midwest. The canal is somewhere in the middle of all that, doing its job quietly.
Then 2023 happened. It stopped raining in Panama, a lake started drying up, and suddenly one of the most important trade arteries on earth was running at half speed. More than 200 ships sat waiting in line. Cargo loads were cut. Freight rates spiked. Companies that had built supply chains around reliable, predictable transit times through Panama had to scramble — rerouting around the Cape of Good Hope, paying premium fees to jump the queue, or simply waiting.
The canal has since recovered. But the episode was a useful reminder that supply chain resilience isn't just about what happens inside your four walls. Here's where things stand heading into 2026.
What the Panama Canal actually does
The Panama Canal is an 80-kilometer waterway cutting through the Isthmus of Panama that connects the Atlantic and Pacific Oceans. It handles roughly 5% of global maritime trade and links 1,900 ports across 170 countries. For the U.S. specifically, those numbers are even larger: about three-quarters of all cargo transiting the canal is heading to or from the United States, and roughly 40% of U.S. container volume moves through it.
Before the canal opened in 1914, ships traveling between the East and West Coasts had to go around South America's Cape Horn — an 8,000-nautical-mile detour that added weeks to every voyage. The canal made that irrelevant. Since opening, more than 700,000 vessels have passed through its 51 miles of locks, lakes, and channels.
For food service and healthcare operators, the canal is part of the invisible infrastructure that keeps shelves stocked. Produce from South America, pharmaceuticals from Asia, packaging materials from Europe — a meaningful share of what moves through U.S. distribution networks passes through Panama somewhere along the way. It's easy to take that for granted. 2023 made it harder to.
A quick history: from Roosevelt to the 2016 expansion
The canal was President Theodore Roosevelt's project. In May 1904, Panama granted the United States the right to build and operate it, construction started that year, and it opened for traffic in August 1914. It was, and remains, one of the great engineering achievements in history.
President Jimmy Carter signed the Panama Canal Treaty in 1977, transferring control to Panama over time. The handover completed in 1999, when the Panama Canal Authority (ACP) took over full operations. That transition has never been entirely without controversy, and it became a flashpoint again in 2025 — more on that below.
In 2016, the canal completed a major expansion called the Third Set of Locks Project, coinciding with its 100th anniversary. The expansion added a new lane of traffic and introduced a new ship class — New Panamax, or Neopanamax — roughly one and a half times the size of original Panamax vessels and capable of carrying about twice the cargo. The expansion effectively doubled capacity and triggered billions of dollars in port infrastructure upgrades up and down the U.S. East Coast, particularly in New York, Baltimore, Savannah, and Florida.
The 2023-2024 drought: A supply chain wake-up call
For most of its history, the Panama Canal's story was one of capacity and commerce. That shifted in 2023, when it became something else: a chokepoint.
The canal's lock system runs on freshwater from Gatún Lake, which refills during Panama's wet season. In 2023, Panama experienced its worst drought in a century, a combination of El Niño and longer-term climate shifts. Rainfall in the wet season ran more than 30% below average. Gatún Lake dropped to historic lows.
The ACP had no good options. By late 2023 they had cut daily vessel transits from the normal 36-38 down to 24. Draft restrictions — limits on how deep in the water a ship can sit — forced vessels to reduce their cargo loads before they could enter the locks. At the worst point, over 200 ships were lined up waiting. During peak drought conditions, fewer than 250 container vessels per month could transit the canal, a steep drop from normal levels. For the full fiscal year 2024, total transits fell to 11,290 — well below the 13,759 annual average of the prior decade.
The effects spread quickly. UNCTAD estimated that sustained high freight rates could push global consumer prices up 0.6% by late 2025, with processed food prices rising as much as 1.3%. Companies running just-in-time supply chains got hit hardest. Some absorbed the delays. Some paid to jump the line. Others rerouted entirely around the Cape of Good Hope, adding thousands of nautical miles and significant fuel cost to every voyage.
Recovery, and a new kind of uncertainty
Good rainy seasons in 2024 and 2025 refilled Gatún Lake, and by mid-2025 the canal was back to full operations. Vessel transits recovered to 13,404 for fiscal year 2025, and canal revenues hit a record $5.7 billion, up 14.4% year over year. Average transit times stabilized around 11 hours. The backlog cleared.
The drought did leave one lasting mark: it made the canal's vulnerability impossible to ignore. The entire system depends on a single freshwater reservoir. When that reservoir runs low, there are no good alternatives. The ACP has responded by committing to a $1.6 billion reservoir project along the Río Indio, designed to secure water supply for the next 50 years. Construction is expected to begin around 2027.
Then there's the political side. In his January 2025 inaugural address, President Trump called for the United States to reclaim the canal, pointing to Chinese influence in port operations through Hong Kong-based CK Hutchison Holdings, which operates terminals at both ends of the waterway. Panama rejected that outright and has continued to operate the canal as a sovereign Panamanian institution. The canal is functioning, revenues are at record levels, and traffic continues to grow. But the geopolitical noise has introduced a new layer of uncertainty for shippers and logistics planners thinking about long-term routing decisions — and that uncertainty isn't going away quickly. The political tensions remain unresolved heading into 2026.
What this means if you run a cold chain
The 2023-2024 drought made visible something that had always been true but easy to overlook: when the Panama Canal slows down, the cold chain feels it first.
Temperature-sensitive cargo — fresh produce, frozen food, pharmaceuticals, vaccines — is the most vulnerable to transit delays. Ships sitting at anchor in tropical waters for days on end are not a good environment for a reefer container carrying insulin or fresh berries. Cargo load reductions mean shipments get split and arrive on different vessels. Rerouting through warmer latitudes adds transit time and temperature exposure. Every delay compounds.
For operators managing supply chain visibility across food service or healthcare networks, canal disruptions translate directly into inventory uncertainty, longer lead times, and procurement pressure. The operators who handled the 2023-2024 disruption best weren't the ones who predicted it — nobody did. They were the ones who had real-time visibility into their network when it happened, so they could act on data rather than wait for bad news to arrive with the shipment.
When transit times become unpredictable, knowing the exact condition of every product in your network — in real time — is how you protect your inventory and your customers. SmartSense's automated temperature monitoring and cold chain quality assurance tools are built for exactly that kind of uncertainty.
Frequently Asked Questions
How does the Panama Canal affect the U.S. supply chain?
The Panama Canal handles roughly 40% of U.S. container volume, connecting East Coast ports to suppliers in Asia, South America, and Europe. When canal capacity is restricted by drought, congestion, or geopolitical uncertainty, U.S. shippers face longer transit times, higher freight rates, and inventory delays that ripple through food service, retail, and healthcare supply chains.
What happened to the Panama Canal in 2023 and 2024?
Panama's worst drought in a century dropped Gatún Lake to historic lows, forcing the Canal Authority to cut daily vessel transits from 38 down to 24. Draft restrictions meant ships had to carry less cargo. Annual transits fell to 11,290 in fiscal 2024, well below the prior decade's average of 13,759, causing widespread supply chain delays and increased freight costs globally.
Has the Panama Canal recovered from the drought?
Yes. By mid-2025 the canal had returned to full operational capacity, with vessel transits recovering to 13,404 and revenues hitting a record $5.7 billion for fiscal year 2025. The Canal Authority has also committed to a $1.6 billion reservoir project along the Río Indio, expected to begin construction in 2027 to secure long-term water supply.
What is a Panamax ship?
Panamax refers to the maximum vessel size that can transit the original Panama Canal locks — roughly 970 feet long and 105 feet wide. After the 2016 expansion, a new class called New Panamax or Neopanamax was introduced. These ships are about one and a half times the size of original Panamax vessels and can carry roughly twice the cargo volume.
Who controls the Panama Canal?
The Panama Canal Authority (ACP), a Panamanian government agency, has operated the canal since 1999 under the Panama Canal Treaty signed by President Jimmy Carter in 1977. In early 2025, President Trump called for the U.S. to reclaim the canal citing Chinese influence in port operations. Panama has firmly rejected those demands, and the canal remains under Panamanian sovereignty.
Why is the Panama Canal important for cold chain logistics?
A significant share of temperature-sensitive cargo including fresh produce, frozen food, pharmaceuticals, and vaccines transits the Panama Canal on its way to U.S. distribution networks. When canal operations are disrupted, extended transit times and rerouting create temperature excursion risks, making real-time monitoring and supply chain visibility critical for food service and healthcare operators.
