Panama Canal effects to be felt throughout 2024
The Dry Bulk and LNG segments have borne the brunt of restricted transits of the Panama Canal that has been pushed into a crisis due to the drought and low water levels. Dry bulk and LNG vessels have been impacted primarily due to the fact that they don’t adhere to a fixed liner schedule but instead “arrive at the canal on an ad hoc basis”, Container XChange said in its latest report.
“In contrast, liner shipping has faced minimal consequences from transit reductions but has primarily been affected by draught reductions. The maximum draught has been decreased from 50 feet to 44 feet, with each foot reduction in draught resulting in a “loss” of 400 TEU capacity. Consequently, an average container vessel can now transport 2400 TEU less,” shared Christian Roeloffs, cofounder and CEO of Container xChange.
Currently spared from chaos, the Panama Canal finds an unexpected ally in the form of a demand lull, preventing disruptions that would have posed a significant challenge for westbound trade shippers.
“At present, container shipping trade flows remain unencumbered. However, anticipating increased pressure on the US East Coast, the Suez Canal and the Cape Horn in the coming months, shippers are likely to explore alternative routes to circumvent potential disruptions,” added Roeloffs.
The immediate impact includes a halved number of vessels passing through the canal, resulting in shipping companies rerouting vessels, blank sailings, longer transit times, and potentially higher shipping costs in the coming times.
The mid to long-term repercussions of the Panama Canal situation will run easily throughout the next year (2024) because of the irreversible environmental concerns that will dwindle the performance of the canal in time.
Current Challenges at the Panama Canal
The ongoing challenges, compounded by the Panama Canal Authority’s water conservation measures in response to drought, have led to prolonged wait times, capacity limitations, and additional strain on shipping schedules. Measures like the restriction of booking slots and adjustments to vessel weight requirements have further elongated waiting times, according to Container xChange.
The resulting supply chain disruptions are expected to reverberate throughout the industry, potentially impacting container prices. Heightened competition for available slots has driven up spot freight rates, prompting carriers to re-evaluate pricing strategies to offset increased costs and uncertainties. Several carriers have already announced new fees for Panama transits including MSC who will impose a US$297/container Panama Canal Surcharges (PCS) from 15 December.
According to the Panama Canal Authority, the average daily queue of non-booked vessels waiting for transit has increased from 2.5 days on November 4, 2023, to 9.3 days as of November 28, 2023, for northbound vessels. Southbound vessels have experienced a similar trend, reaching an average waiting time of 10.5 days.
As a response to the crisis, carriers are redirecting more volume to the U.S. West Coast or opting for routes via the Suez Canal. This shift in shipping patterns may impact transportation costs, delivery times, and overall supply chain efficiency for U.S. businesses. The potential escalation of intermodal volume to the U.S. West Coast could affect capacity and efficiency, leading to increased costs or delays for businesses relying on these services.