Key takeaways
Weather disrupts trade
Strong El Niño threatens global trade stability.
Waterways under stress
Lower water levels limit vessel accessibility.
Trade faces uncertainty
Weather and geopolitics compound existing pressures.
El Niño is once again in focus for commodities and shipping markets.
Although not an unfamiliar phenomenon, this year’s occurrence is being described as a ‘super’ El Niño. Its arrival comes at a time when global trade flows are already under strain.
As a result, its effects are unlikely to be isolated to weather patterns alone, but instead may amplify existing pressures across food, energy and freight markets, with corresponding legal and contractual implications.
Overview of El Niño
El Niño is a climate pattern characterised by the warming of sea surface temperatures in the central and eastern Pacific Ocean, which in turn alters global weather patterns. It is particularly relevant to commodities markets because it affects rainfall, temperature and storm activity across key producing and shipping regions. In a year where global supply chains are already under strain, even relatively modest weather disruptions have the potential to translate into significant commercial and logistical consequences.
El Niño is now in force with indications suggesting it is one of the strongest on record, and likely to last through winter 2026/2027. This coincides with the northern hemisphere summer, when grain crop formation, higher demand in Asian countries for energy, and the risk of weather disruptions in the Pacific and monsoon regions are at an increased level.
El Niño often reduces rainfall risk in Australia and other parts of South Asia, whilst it can have a corresponding increase in moisture in areas of South America.
Effects of El Niño
With the effects of El Niño now unavoidable, affected countries are already taking measures to manage their waterways.
In August 2026, the Panama Canal Authority announced it will cut the number of ships passing through it per day from 36 to 34 as of 3 September. From 15 September, it is said this will then drop to 32, and the canal authority has not ruled out further restrictions. By way of example, this was reduced from 38 to 22 in 2023.
In addition, while vessels without pre-booked slots to cross the Panama Canal are reportedly being turned away, some parties are looking to bid for expedited transit slots with booking slots reportedly being auctioned at record prices.
In the short run, El Niño tends to boost demand for shipping coal, because of higher energy needs and weather patterns, while at the same time hurting or reducing demand for shipping grain, because crop production is disrupted. This creates potential volatility for freight rates.
Some reports indicate that the market for rice is a strong predictor of future market trends. However, the outlook is said to look uncertain, with reports that soaring energy and fertilizer costs as a result of conflict in the Middle East mean that farmers in Asia have reduced rice planting.
The particular concern this year is that El Niño is due to hit a global trade system that has already been heavily impacted by a combination of geopolitical instability, and pressured energy and food markets. This comes against a backdrop of other extreme weather patterns.
Safe ports and berths
These other weather patterns include disruption caused by droughts which reduce river levels. This poses a particular challenge in regions such as South America, where crops are transported to inland river systems before being moved towards the sea by barge. Effects are also being felt in Europe, where the River Rhine is experiencing unprecedentedly low levels. The same is true in North America where the Mississippi river has experienced low levels. These lower water levels may restrict navigability and loading capacity, meaning that vessels may be unable to operate at full draft or, in more severe cases, are unable to proceed at all.
In turn, this puts pressure on safe port and safe berth warranties, as tightening draft restrictions and the need for alternative routing mean that ports ordinarily considered safe may become unsuitable for vessels of a particular size or type.
The established test for safe ports and berths is set out in The Eastern City [1958] 2 Lloyds Rep 127. It provides that a port or berth will only be regarded as safe if, ‘in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship’.
In the context of El Niño, this definition is particularly important. Where these shallower river conditions are reasonably foreseeable at the time of nomination, they may be relevant to the assessment of the port’s safety, and arguments may arise that the charterer has failed to nominate a safe port.
In addition, fluctuating conditions, such as rapidly changing draft limits or sediment build-up in river approaches, raise questions as to whether a port that was initially safe can become unsafe during the course of the voyage. This may lead to disputes around orders, deviation, and whether owners are justified in refusing to proceed or in seeking alternative employment. Each dispute, however, is very fact specific, depending largely on the vessel, timing, and the contractual terms agreed between the parties.
Demurrage and laytime
Congestion may be a significant factor. As vessels are slowed or re-routed, increased waiting times and queuing may give rise to demurrage and laytime disputes. Close consideration is therefore required to contractual terms.
Force majeure and frustration
There may also be questions relating to force majeure or frustration in instances where delivery to certain ports is deemed impossible due to low river water levels.
In English law, in circumstances where low water levels in rivers mean that vessels have to wait longer before proceeding along rivers, it is unlikely that the concept of frustration will be available. This is because it is usually necessary to prove that performance of the contract has become impossible. This is different to a situation where performance can take place, even if it is severely delayed or becomes much more expensive. It is advised that parties review their force majeure clauses to assess how river accessibility and El Niño related effects impact them.
Other sale contract and chartering issues
From a sale contract perspective, El Niño related disruption may give rise to disputes over delivery windows, quality specifications (particularly where crop yields are affected), and the availability of force majeure relief. Parties should pay close attention to the wording of force majeure clauses, particularly whether they expressly encompass weather events, and the extent of any mitigation obligations.
In the chartering context, issues may arise in relation to deviation, off-hire, and delay. For example, rerouting to avoid affected regions or to access alternative ports may trigger disputes as to whether such deviations are reasonable and permitted. Similarly, delays caused by congestion, draft restrictions or reduced canal capacity may give rise to arguments around laytime, demurrage, or off-hire, depending on the contractual allocation of risk.
Conclusion
El Niño is both a symptom and a driver of a turbulent geopolitical climate that poses a risk to food and energy security. The resulting economic challenges are widespread and, whilst owners, charterers and traders are unable to control the weather, they can control their responses to it.
Therefore, it is advised that parties:
Review contractual protections – in particular force majeure clauses, ensuring they are sufficiently wide to capture weather related disruption and associated downstream effects.
Review logistics chains – identify potential bottlenecks (eg canals, rivers, and key ports) and consider contingency routing and transshipment options in advance.
Document mitigation efforts carefully – particularly where seeking to rely on force majeure or similar protections, as evidencing reasonable steps to avoid or minimise disruption will often be critical in any subsequent dispute.
Find out more about our Commodities and Shipping expertise or contact us today to discuss how we can help.
This article was co-authored by Trainee Solicitor, Griff Gough-Walters.
