Even restricting the number of Panama Canal Neo-Panamax transits to just five, there should still be enough capacity for container ships; however, it will be a different story for other types of vessels, such as gas carriers.
As Panama continues to deal with the worst drought in 73 years, the Panama Canal Authority (ACP) plans to reduce the number of reserve slots to just 18 as of February 1, 2024, of which five will be for Neo-Panamax.
Following the announcement of the new restrictions, Ocean Network Express (ONE) CEO Jeremy Nixon wrote to Panama’s President Laurentino Cortizo that the continued delays and cargo restrictions for Neo-Panamax had reached such a level of concern that the container line would have considered diverting vessels. from Asia to the east coast of the United States through the Suez Canal.
The Panama Canal also has a 13.41-meter draft restriction to save water, forcing container ships to carry less cargo on voyages between Asia and the U.S. East Coast or to transship a portion of cargo overland through Panama.
Judah Levine, Freightos’ head of research, notes that about five Neo-Panamax containerships cross the Pacific bound for the U.S. East Coast every day. “Authorities will reduce daily neo-Panamax transits to 5 by February, suggesting that even at their most extreme levels, the restrictions could still accommodate container traffic reasonably well.”
However, this does not mean that container shipping will not be affected and Levine told Seatrade Maritime News, “It is certainly possible that container shipping will be affected anyway, in the form of some delays or higher rates.”
However, as has been well reported, container shipping is facing a period of severe overcapacity as a record volume of newbuildings is delivered to the global fleet. “In the current state of overcapacity, carriers needing more vessels to cope with delays caused by fewer transits could be welcomed by carriers trying to manage oversupply and thus would likely mitigate the extent of any rate increases for carriers,” he commented.
Glenn Koepke, general manager of network collaboration at FourKites, took a similar view. “This disruption will help provide a needed boost to shipping lines and freight forwarders who are struggling with profitability and operating margin. Given that the weak economic outlook will last until at least the middle of next year, we anticipate this will cause rates to increase over the next 2 months and then beyond February, there is too much variability to predict what market conditions, route availability and economic demand will likely be. .”
While the situation may not be critical for container shipping, it could be much more serious for other types of vessels, such as gas tankers, oil tankers and bulk carriers.
This week two gas tankers, the Pyxis Pioneer and the Sunny Bright, came within 10 miles of the channel before changing course, according to ship tracking data compiled by Bloomberg.
“A detour, through the Strait of Magellan or Cape Horn, adds about 9,500 additional miles or 25 more days to a voyage compared to transiting the channel,” said Amrit Singh, principal analyst at LSEG Shipping Research.
The alternative is to bid for places at auctions, which have skyrocketed. Japan’s Eneos Group made a winning bid of $3.975 million for a transit at auction on Wednesday, more than $1 million higher than the previously reported high bid of $2.85 million.
“Six LPG tankers remain at Balboa Anchorage and waiting times average about seven days. Transit slots continue to be auctioned off to the highest bidder, with typical prices in the $300,000 to $400,000 range soaring to a record $4 million this week,” added Singh.
While Freightos’ Levine noted, “Many shippers began using longer alternatives to the Canal earlier this year, increasing spot rates for those markets. These adaptations are likely to increase as restrictions intensify.”
The huge cost of transits at auction is effectively discounting some owners. In his weekly report, Poten warned that large tanker owners would stop using the canal.
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