Panama Canal delays threaten Chilean grapes and Ecuadorian bananas

November 16 , 2023

An article published in the Journal of Commerce by analyst Richard Bright analyzes the impact of transit cuts and delays in the Panama Canal regarding Latin American perishable exports that must pass through the Canal to reach their destination. 

With delays on the Panama Canal already standing at 10 days for vessels that have not pre-booked a transit, there are growing concerns over the impact that drought-linked restrictions will have on the trade in perishable products from the West Coast of South America to the US East Coast and continental Europe.

According to the article, the spot banana business out of Ecuador and the specialized reefer-centric Chilean grape season are especially vulnerable. 

There is considerable jeopardy: Unlike the regular weekly banana services out of Ecuador operated by Seatrade (Rayo to the UK and Northern Europe) and Cool Carriers (to St. Petersburg), which have pre-booked transit slots, seasonal deciduous fruit and spot banana cargoes do not. 

To illustrate the point, both the recently loaded MV Fegulus and MV Green Costa Rica spot banana charters have to wait patiently for their turn to cross the waterway. 

Ecuadorian Bananas

Under current circumstances, the vessels will likely be the last spot banana cargoes for the next six to eight months, particularly as Central America is about to enter the dry season. While this may be a lost opportunity from the perspective of a reefer operator, it could have serious implications for the Ecuadorian banana industry. 

If, for example, there is a surge in Ecuadorian banana production, as is common early in the new year, shippers that might have chartered in tonnage to sell the excess on a spot voyage into the Mediterranean now have no option but to hope that the carriers have positioned enough equipment to handle the increase. With both the Seatrade and Cool Carriers’ liner services fully loaded, there will be no specialized reefer alternative if spot charters become impractical.

At its maximum, the Panama Canal can handle 40 ship transits a day, a figure that has been eroded this year as months of record drought have taken their toll. By February next year, the number will fall to 18. 

The imbalance in the supply/demand equation has already had an impact, causing the daily slot auction values to spike. Last week, Japan’s Eneos Group paid $3.975 million to jump the queue, smashing the record of $2.85 million set the previous week. 

Chilean table grapes

The position may be precarious for Ecuadorian bananas, but it will be significantly more problematic for Chile. Vessels loading table grapes, berries, and stone fruit in Chile can be affected by any number of predictable and unforeseeable variables at both ends of the chain. These include weather-related picking and packing delays, inaccurate crop timing and volume estimations, berthing issues and port congestion in Valparaiso, and port congestion and delays in the Delaware River prior to a return voyage. 

To make the forthcoming season work, the dedicated reefer services will have no choice but to become as disciplined as those services operated by the carriers to meet their pre-booked transits.  

Delays poised to grow as transits cut further

If a vessel misses its laycan (lay days/canceling) at Balboa, it will have to wait. That is not ideal for perishable cargo. And with the Canal authorities staggering the reduction in the number of transits over the next few months, a 10-day delay today could readily become a 20-day delay by mid-January – and likely worse by February. 

With all Chilean grapes needing to arrive in the U.S. before the April marketing order deadline, the situation in March could verge on critical.

For the Seatrade and Cool Carriers’ services to meet their laycans at the Canal, they may in some instances be obliged to cut and run, thereby sailing light. In this case, to meet their volume contracts with shippers, the operators may have to employ additional “buffer” vessels to cover commitments. Logistically, this should not be a problem – there is enough tonnage. 

Commercially, however, it would not be ideal given that the yield on the Chilean program freight rates this year is already poor on fully laden ships. 

Meanwhile, in an absolute worst-case scenario, vessels destined for the USEC missing their Canal laycans will divert to the U.S. West Coast and rail or truck cross-country. 

The carrier’s operating services on the same trade lane will be affected partly by the reduction in the absolute number of transits and partly because there will also be a limit in the vessel draft. Contingent on the size of the vessel, this limitation will oblige carriers to discharge containers in Balboa to be railed across the isthmus to Cristobal, from where they will be re-loaded. Although the railed containers are more likely to be dry vans than reefers, the transshipment process will inevitably delay the voyage and may also cause congestion in the container terminals at either end of the waterway.

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