Home Business News Panama Canal water levels to impact Westbound trade well into 2024

Panama Canal water levels to impact Westbound trade well into 2024

by LLB staff reporter
30th Nov 23 11:51 am

Container xChange, the leading online platform for container logistics, provides crucial insights into the far-reaching effects of the ongoing Panama Canal crisis on global trade and on the container shipping industry.

With this update, we aim to assist our customers and partners with visibility into the situation for better decision making for their businesses.

Panama Canal crisis and global trade impact

The Dry Bulk and LNG segments have borne the brunt of restricted transits, particularly due to their ad hoc scheduling. In contrast, liner shipping has faced minimal consequences from transit reductions but has been significantly affected by draught reductions.

Christian Roeloffs, cofounder and CEO of Container xChange said, “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.”

“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.”

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The Panama Canal, currently spared from chaos, 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 potential higher shipping costs in the coming times.

The mid to long term repurcussions of 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 a 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.

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.

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