The ongoing disruptions in the Panama Canal are expected to continue impacting westbound trade well into 2024
Panama has faced an especially dry spell this year, and the drought and scarcity of freshwater has caused the use of the Panama Canal to be limited to ensure a safe freshwater supply for the populace of the Central American nation.
With the situation expected to persist, reduced transits through the canal are already having a significant impact on the movement of goods by ship.
The Dry Bulk and LNG segments have borne the brunt of restricted transits, particularly due to the two segments’ often ad hoc scheduling, according to container logistics platform Container xChange.
“The Dry Bulk and LNG segments have experienced the greatest impact due to restricted transits, primarily because they don’t adhere to a fixed liner schedule but instead ’arrive at the canal on an ad hoc basis’," Container xChange said.
Box shipping, while being prioritised for Panama Canal slots, has still seen significant impacts due to draught restrictions in place in the global shipping shortcut.
“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 (15.25 m) to 44 feet, with each foot of reduction in draught resulting in a ’loss’ of 400 TEU capacity. Consequently, an average container vessel can now transport 2,400 TEU less.” Container xChange CEO Christian Roeloffs said.
The immediate impact includes a halved number of vessels passing through the canal, resulting in rerouted ships, blank sailings, longer transit times, and potentially higher shipping costs in the coming months.
Container xChange believes 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.”
Panama’s upcoming dry season, which runs from December 2023 to April 2024, is expected to prolong wait times and capacity limitations placing further strain on shipping schedules, and Container xChange believes the resulting supply chain disruptions will reverberate, impacting container prices.
The company said “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 US$297/container Panama Canal Surcharges (PCS) from 15 December.”
The Panama Canal Authority said the average daily queue of non-booked vessels waiting for transit has increased from 2.5 days on 4 November 2023 to 9.3 days by 28 November 2023, for northbound vessels. For Southbound vessels, the average waiting time stands at 10.5 days.
As a response, carriers are redirecting more volume to the US West Coast or opting for routes via the Suez Canal, Container xChange said. This shift in shipping patterns may impact transportation costs, delivery times, and overall supply chain efficiency for US businesses. The potential escalation of intermodal volume to the US West Coast could affect capacity and efficiency, leading to increased costs or delays for businesses relying on these services.
To avoid disruptions, Container xChange believes logistics operators may intensify the use of intermodal transportation and renegotiate shipping contracts for the upcoming contract season in 2024.
Analysis from shipbrokers Poten & Partners anticipates the fallout from the canal’s water woes will mean the elimination of large tankers from this corridor. A large reduction in slots will also push tramp cargoes away from the canal, leading to more tonne-mile demand and possibly changes in segment utilisation as longer hauls may stimulate the use of larger vessels.
On the whole, Container xChange said that a current lull in consumer demand may be preventing what could become an even greater challenge for westbound trade shippers.
With the return of higher demand, the company told customers that it foresees traffic diversions across the board.
“At present, container shipping trade flows remain unencumbered” explained Mr Roeloffs, “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.”
© 2023 Riviera Maritime Media Ltd.