News / Panama Canal problems may prompt strategy re-think in shipper boardrooms

Photo: © Richardpross

Persistent low water levels in the Panama Canal are raising questions for cargo owners on the strategic validity of a route that helped many circumnavigate congested US west coast ports.

Owing to a drought that has reduced water levels in the canal and its watershed and adjacent rivers, which supply fresh water to several cities, including the capital, the canal authority (CPA) had to implement restrictions on shipping, limiting the number of daily transits and the draught of vessels.

This forced some containerships to unload boxes at the entrance to the canal for transfer across the isthmus by rail.

On Wednesday, the CPA announced it had decided to extend the restrictions, which allow a maximum of 32 transits a day. Ships that don’t have a confirmed booking have to go through auctions, which can go up to $1m for a slot.

The situation has repercussions for cargo owners. Christian Roeloffs, CEO of Container xChange, said: “Challenges at the Panama Canal are making existing worries for industries even worse. With inventories falling and demand expected to rebound, the canal […] is likely to experience increased pressure.”

Some observers and logistics providers have warned that goods needed for the Christmas shopping season might arrive late. Goods worth $270bn – about 73% of the canal’s annual volume – are headed for the US market, according to the CPA.

The limits on transits have caused a vessel pile-up: according to some reports, there were 200 queueing a few days ago, with wait times of up to 21 days.

The reality is less dramatic, however, the CPA said on Wednesday 120 ships were waiting for passage, and earlier this week the average wait time for unbooked transits was 9-11 days.

Meanwhile, the restrictions have hit some sectors significantly harder than others. Most affected have been dry bulk carriers. In early August they accounted for 91 ships waiting for passage. Container lines, on the other hand, have seen only minor disruption, as they are prioritised and usually book transit slots well in advance, saidd Judah Levine, head of research at Freightos.

There have also been warnings of elevated costs for transit through the Panama Canal. In June, a few box lines, including Hapag-Lloyd and CMA CGM, announced transit surcharges, but for the most part, carriers have not piled-on additional fees so far.

As for rate increases, pricing on the direct transpacific routes to the US west coast has gone up faster than rates through the Panama Canal.

“Slack capacity in the market will also likely mitigate the impact of any congestion on freight rates,” Mr Levine commented.

For Maersk it has been business as usual so far. A spokesman said: “We haven’t really seen a material change in vessels travelling to the east coast ports vs the west coast,” and added that peak season flows had strengthened business to both coasts’ gateways.

Some observers have commented that it was too early to see the full impact of the canal restrictions on cargo owners and their routings, but long-term, the problems are causing some reflections in shipper boardrooms. One forwarder executive reported an increase in  requests for transit through the Suez Canal, adding that he expected an increase in flows through US west coat ports.