Panama Canal Restrictions to Remain for at least 10 Months

Panama Canal Restrictions to Remain for at least 10 Months

The Panama Canal Authority recently warned water-conserving measures will be in place for at least the next 10 months.  As a result, global shipping companies have been urged to share transit plans at one of the world’s key maritime chokepoints.

An unprecedented drought this year, combined with the onset of the El Niño weather phenomenon, has resulted in a cut of draft restrictions for ships coming through its larger neopanamax locks by six feet. Transits also have been slashed by 20% to only 32 vessels a day. 

These measures have resulted in ships backing up in significant numbers at either end of the canal. The Aug. 25 official total count was 129 ships, down from the peak of 165 earlier that month, but still 43% higher than the average. 

The Panama Canal Authority has noted the restrictions would remain in place at least throughout the first half of 2024. 

Container services and cruise itineraries tend to transit the canal with long advanced bookings. For bulk sectors, it is more ad hoc and with shorter notice, and it has been here the impact has been greater, where it might not be possible to obtain an advanced booking and therefore joining the queue is necessary. 

The limits on transits have caused a vessel pile-up. According to some reports, there were recently 200 queuing, with wait times of up to 21 days.

While there are complex options, it’s noted ships greater than 12,000 TEUs, may choose to re-route through Suez. TEU is the industry term for a 20-foot equivalent unit.

For smaller containerships, which can still pass fully laden, a backhaul return to Asia via the Suez or the Cape with a slightly longer distance and time is another option liners will be looking at to reduce overall Panama demand while also soaking up capacity at a time where container fortunes are widely perceived to be on the wane through to at least the end of next year. 

There has already been one cruise ship cancel its winter Panama season. Container carriers switching routes will be watched carefully by other sectors keen to get prized slots through the waterway in the coming months. 

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

The travails at the canal are not having a notable lifting effect on container spot rates in the past two weeks. Drewry’s weekly World Container Index, published Aug. 27, showed rates from Shanghai to New York were down by $120 per feu (forty-foot equivalent unit).  

The longer the situation persists the bigger the chances are of further freight rate increases and the likelihood that shippers will begin to divert cargo back to the US west coast ports and use rail to bring the cargo to its final destination.