Panama Canal Restrictions Likely to Last for the Next Year
Restrictions on the draft of vessels and the number of daily transits at the Panama Canal appear to be the “new normal” for the operation. In interviews with Reuters and Agence France-Presse, Panama Canal Authority executives said they expect to maintain their current rules for at least 10 more months as they seek to manage operations in the face of a drought and climate change.
According to the executives by warning the shipping industry it will give carriers and shippers time to plan and adjust their schedules. This comes as shipping industry analysts have expressed concern regarding the potential impacts. They have predicted increasing shipping costs and are now “raising concerns about the ability of businesses to replenish their inventories in a timely manner due to the shipping delays,” said Christian Roeloffs, Cofounder of Container xChange, an online platform for managing container logistics.
Panama Canal executives acknowledge the concerns while noting that they are working to balance the demand noting that they are seeing an increase in the number of arrivals. Despite reports that container carriers have been consolidating their schedules between routes and blanking sailings to manage declining volumes, the Panama Canal continues to see a high demand. Their online data for example shows that as of midday on August 25 there are 35 ships arrived in the past day and waiting for transit which represents about a quarter of the total number of ships waiting.
To help manage the backlog that grew after they reduced the number of daily transits to approximately 32, the Panama Canal Authority lowered the number of daily reservations to provide for more ships arriving at the canal without a booking. While they are urging shipping companies to make more bookings, the authority temporarily lowered the number of reservations using Condition 3 which permits 10 super-sized ships and four slots for regular-sized vessels a day. The standard offering is 23 booking slots which is normally lowered to 16 when there are reductions in capacity due to maintenance or other issues at the canal.
The efforts to keep vessels moving and address the backlog seemed to have helped with the canal authority reporting a nearly 20 percent decline in the backlog. They said this week the average wait for unbooked vessels is between 9 and 11 days. Online data from the canal shows today the peak wait is around 5 to 6 days with only 3 ships waiting 10 days. The demand appears to be stronger for the northbound passage.
Ships queued up outside the Panama Canal as part of the "world's worst traffic jam". Water shortages due to climate change and El Nino (the canal locks require fresh water from lakes to operate) mean around 130 ships are waiting, up from around 90 in normal times. pic.twitter.com/69uxdQwmAK— Daniel Harkins (@DanielHarkins00) August 24, 2023
The backlog came down from reports of as many as 160 ships waiting for the transit. Today’s data shows a total of 131 vessels waiting. It is nearly evenly split between ones with and without bookings. Nearly three times as many Neopanamax vessels have bookings, 16 out of 22, with the authority noting that it maintained the transits for 10 Neopanamax ships a day and continues to give a preference to containerships. Bulkers and coal carriers are experiencing longer waits with some of the ships choosing to divert. LNG and gas carriers are the second largest number of vessels using the canal, but at this time of year, cruise ships are not making the transit. Passenger ships typically do not wait because of the nature of their schedules and business.
“With inventories falling and demand expected to rebound, the Panama Canal, which carries 40 percent of container traffic from Asia to Europe, is likely to experience increased pressure,” says Roeloffs. Retailers in particular he notes are moving into peak season needing to get new goods for the fall and holiday season sales.
Everstream Analytics which analyzes the supply chain reports that its chief meteorologist Jon Davis says the short-term forecast into early September “looks problematic.” He does not see any kind of improvement in the water levels for Gatun Lake, noting that normally at this time of the year lake levels are increasing since it is the core of the wet season. Rainfall during the seven-week period which typically marks the beginning of the rainy season has been the sixth lowest since 2000. Davis says since July 1 rainfall has been “drastically below normal.”
With the onset of the weather pattern known as “El Nino,” Panama expects rainfall to continue below normal. Executives from the canal told AFP that unless heavy rain falls in the next three months, the restrictions are likely to remain in place for at least one year.