Panama Canal restrictions to stay in place for at least 10 months

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Panama Canal restrictions to stay in place for at least 10 months

Global shipping bodies have been urged to come together to share transit plans at one of the world’s key maritime chokepoints with officials at the Panama Canal Authority. This authority last week warned that water-conserving measures will be in place for at least the next 10 months. 

Faced with an unprecedented drought this year, combined with the onset of the El Niño weather phenomenon, Panama Canal administrators have cut the draft restrictions for ships transiting its larger neopanamax locks by six feet.  They have also slashed transits by 20% to just 32 vessels a day. 

These measures have seen ships backing up in significant numbers at either end of the canal. The Aug. 25 official total count is 129 ships, down from the peak of 165 earlier this month, but still 43% higher than the average. 

The canal’s deputy administrator, Ilya Espino, told Reuters Aug. 24 the restrictions would remain in place for at least throughout the first half of 2024. 

Container services and cruise itineraries tend to transit the canal with long advanced bookings. For bulk sectors, it is more ad hoc and with shorter notice, and it has been here that the impact has been greater this August, where it might not be possible to obtain an advanced booking and therefore joining the queue is necessary. 

The limits on transits have caused a vessel pile-up. According to some reports, there were 200 queuing a few days ago, with wait times of up to 21 days.

While there are complex options, it’s noted that ships greater than 12,000 TEUs, may choose to re-route through Suez. TEU is the industry term for a twenty-foot equivalent unit.

For smaller containerships, which can still pass fully laden, a backhaul return to Asia via the Suez or the Cape with a slightly longer distance and time is another option liners will be looking at to reduce overall Panama demand while also soaking up capacity at a time where container fortunes are widely perceived to be on the wane through to at least the end of next year. 

There has already been one cruise ship that has canceled its winter Panama season. Container carriers switching routes will be watched carefully by other sectors keen to get prized slots through the waterway in the coming months. 

Some observers and logistics providers have warned that goods needed for the Christmas shopping season might arrive late. Goods worth $270 billion – about 73% of the canal’s annual volume – are headed for the U.S. market, according to the CPA.

“Maybe the bulk and container segments such as the World Shipping Council, INTERTANKO, INTERCARGO and BIMCO along with the Panama Canal Authority can come together to strategically plan how to best use the limited resources in the short and medium term. Such cross-industry coordination and collaboration, I think would be a first,” suggested Andy Lane, a partner at shipping advisory CTI Consultancy. 

The travails at the canal are not having a notable lifting effect on container spot rates in the past two weeks. Drewry’s weekly World Container Index, published Aug. 27, showed rates from Shanghai to New York were down by $120 per feu (forty-foot equivalent unit)

Nevertheless, this could change soon, argued Niels Rasmussen, chief shipping analyst at BIMCO, in a conversation with Splash today. 

“The longer the situation persists the bigger the chances are of further freight rate increases and the likelihood that shippers will begin to divert cargo back to the US west coast ports and use rail to bring the cargo to its final destination,” Rasmussen said, stressing that the predicament in Central America was unlikely to impact global supply chains as the container trade is expected to continue to suffer from excess ship capacity.

“Carriers must act, and shippers too. But it’s a fight for space with a fully utilized canal right now, and more volumes on the way in Q3 and into Q4,” warns Peter Sand, chief analyst at Xeneta, a freight rate platform. 

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