The Panama Canal Tolls Dispute: A Look at the Recent Controversy

Despite a US State Department announcement stating that US Navy ships can transit the Panama Canal without fees, the canal’s governing authority has asserted that they are not exempt from tolls just yet.

On February 5, 2025, the US State Department said in a post on X, formerly Twitter, that the United States government ships would be allowed to transit the Panama Canal toll-free, resulting in “millions of dollars of savings” for America.

The Panama Canal Authority (ACP), which has sole control over transit tolls, refuted the State Department’s claims, stating in a post that no fee modifications have been made. The authority nonetheless expressed its openness to engaging in constructive dialogue with relevant US officials regarding the transit of America’s warships.

Navy use of the canal, however, is understood to be quite infrequent—around 40 vessels transiting per year, or representing what is estimated to be 0.3% of the canal’s traffic from 1998 to now—with fees varying depending on the ship’s displacement tonnage, or the weight of the water displaced by the vessel.

The President of Panama José Raúl Mulino shared that the State Department’s declaration had ‘taken him by surprise’.

“They are making significant statements based on a falsehood, and that is intolerable, simply and plainly intolerable,” President Mulino reportedly told CNN Latin America.

President Mulino also added that—unlike the exorbitant digits that have been alleged to be the ‘real’ sum of money that the US pays in tolls to the canal—the fees for American-flagged ships have been $6 to $7 million annually, a price he felt was manageable for US economy.

The Significance of the Canal

Spanning over 82 kilometers, the Panama Canal has been the main link between the Atlantic and Pacific Oceans, with the US as its largest user.

As per the ACP, in 2024, 52% of transits through the canal had ports of origin or destination in the United States, while more than 76% of the cargo that transited the canal had the US as its origin or destination. In addition to this, the ACP unveiled that more than three-quarters of this cargo went through the Neopanamax lock.

However, the canal’s alleged ties with China—particularly with the fact that two of the canal’s adjacent ports, Balboa and Cristóbal, have been operated by the Hong Kong-based Hutchison Port Holdings—have somewhat strained Panama’s relationship with its North American neighbor in the past weeks.

Specifically, the backs-and-forths between the Panamanian and the American government come on the heels of Secretary of State Marco Rubio’s visit to Panama on February 1 and February 2 where he met up with President Mulino as well as Foreign Minister Javier Martínez-Acha.

During the visit, Secretary Rubio toured the canal and, as reported, engaged in an array of discussions pertaining to the future relations between Panama and the United States.

Reiterating President Donald Trump’s concerns regarding the alleged control of China – or rather, the Chinese Communist Party (CCP) – over the canal, Secretary Rubio underscored that the US would not tolerate what it defined as a ‘threat’ and a ‘violation’ of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal.

To remind, immediately upon taking office, President Trump reignited a controversy, stating he would ‘take back the gift’ that the US had given away, in reference to Panama.

“Panama’s promise to us has been broken. 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,” President Trump had emphasized during this inaugural speech.

Despite rejecting the notion of the Far Eastern country possessing any sort of significant influence over the canal, the Panamanian government soon announced that its memorandum of understanding (MoU) with China under the Belt and Road Initiative (BRI), intended to boost trade and infrastructure cooperation, would be revoked. Before that, it had been extended two times.

President Mulino still accentuated that the canal’s sovereignty was not up for debate and that it belonged to Panama only.

Could the Disputes Hamper Panama’s Decarbonization Ambitions?

Severe droughts and water shortage, coupled with the COVID-19 pandemic, proved massive challenges for the Panama Canal over the past couple of years. The recent contentions with the US put it under the magnifier again.

Despite the climate-related challenges, 2023 and 2024 were described as ‘stable’ years; the Panama Canal closed FY24 with 4.99 billion PAB (approximately $4.89 billion), around 209 million PAB above budget and 18 million PAB more than the previous year.

As informed, containerships accounted for 24.6% of total transits in 2024, followed by chemical tankers at roughly 16% and bulk carriers representing around 11.4%. The canal did experience fewer deep-sea transits, with 9,944 ship transits, marking a 21% drop compared to 2023.

Nonetheless, the ACP anticipates that the number could increase again to 12,582 deep-draft transits in FY25 and keep going up, suggesting ‘stability’ despite hurdles.

The canal has also been committed to worldwide decarbonization targets, with plans revealed to aim for establishing the Panama Canal as a “central green shipping hub”.

One such endeavor was discussed by canal administrator Ricaurte Vásquez at a maritime conference in Houston, Texas, held in November 2024.

To be precise, Vásquez reminded, among other things, that the canal authority has made ‘tremendous’ efforts in bolstering the waterway’s position as a green corridor for international trade, particularly with the 2021 introduction of a greenhouse gas (GHG) emissions classification system.