As of the latest update, the Panama Canal continues to grapple with the effects of a historic drought, impacting shipping markets in the region. The drought has compelled the Panama Canal Authority to implement measures to conserve water, including reducing maximum ship weights and daily ship crossings. This situation has significant implications for the global shipping industry, as the Panama Canal is a vital maritime shortcut that connects the Pacific and Atlantic oceans, facilitating the movement of goods and commodities.
Within the last week, the drought-related disruptions at the Panama Canal have led to increased shipping costs and delays, particularly for vessels using this crucial waterway. The reduced weight limits and fewer daily crossings have resulted in queues of ships waiting to pass through, leading to congestion and longer wait times. This congestion has caused shipping prices to surge, affecting trade routes that rely heavily on the Panama Canal.Restrictions at the canal started earlier this year, affecting about 170 countries and virtually every type of good. In particular, bulk carriers that transport commodities from corn to iron ore, as well as tankers that move oil, fuel, gas and chemicals have been affected. Ship owners and operators are faced with difficult decisions as they navigate the challenges posed by the drought. They may opt to carry less cargo, explore alternative routes that add significant tonne miles to voyages, or simply endure the delays and increased costs associated with the bottleneck at the Panama Canal. Meanwhile, energy companies have been occasionally forced to reroute vessels laden with coal and LNG to the Suez Canal.
More than 14,000 ships crossed the canal in 2022. Container ships are the most common users of the Panama Canal and transport more than 40% of consumer goods traded between NE Asia and the U.S. East Coast.
The situation has also brought attention to the broader issue of climate change and its impact on global trade. The disruptions caused by the drought highlights the vulnerability of major trade routes to extreme weather events, emphasising the need for increased resilience and adaptability within the shipping industry.
In summary, the ongoing drought at the Panama Canal continues to affect shipping markets by causing congestion, delays, and increased shipping costs. The situation underscores the broader challenges posed by climate-related disruptions and their potential to reshape the dynamics of the global shipping industry.
Over the course of the previous week, the crude market exhibited dynamic shifts, influenced by multiple factors. These included demand-side elements like economic recovery and geopolitical developments, as well as supply-side considerations such as production adjustments and vessel availability. Crude processing rates experienced a surge in key regions, indicating robust consumption patterns and industry optimism. However, supply chain disruptions, like weather-induced delays and port congestion, added pockets of volatility to specific trade routes. Strategic shifts in vessel utilisation strategies were observed, with shipowners adjusting routes and capacities to adapt to evolving market conditions.
In the VLCC segment, rates for major routes to Asia, namely TD3C and TD15 have been weaker over the week. More specifically, TD3C lost 1.57 points w-o-w to sit at WS 45.58, while TD15 was assessed 1.88 points lower w-o-w to WS 51, amid limited cargo enquiry. Meanwhile, the US Gulf to China (TD22) route saw a slight increase to $8,2m, $27,778 higher w-o-w. In the meantime, sentiment was mixed in the Suezmax realm. In WAF, TD20 climbed 4.09 points w-o-w to sit at WS 68.86 on Friday amidst a tight tonnage list. Given the presence of several outstanding cargoes in the region, there is a potential for rates to experience further upward movement. In the meantime, TD6 was seen 3.3 points lower on the week, to WS 70.8 amid limited enquiry. In the North Sea, Aframaxes have exhibited a subdued performance this week, with minimal disruption to the prevailing conditions. Enquiry remains scarce, and the current rates maintain their position at the lower end. TD7 lost another 1.07 points to sit at WS 96.43. In the Med, Aframaxes started the week slow, but sentiment shifted midweek, with multiple replacements favouring owners. The rate for Ceyhan/Lavera gained 5.05 points w-o-w to and was seen at W106.22 on Friday.
VLCC T/C earnings averaged $ 6,678/day, down – $3,699/day w-o-w, and closed off the week at the $5,121/day mark.
Suezmax T/C earnings averaged $ 10,461/day, up + $889/day w-o-w. On the Aframax front, T/C earnings averaged $ 15,861/day, up + $1,603/day w-o-w.
The sentiment regarding the dry bulk market has exhibited a generally positive trend over recent days, primarily driven by increased trade activity in grain and coal. This upswing has provided a foundation for rates in both the Panamax and geared sectors. The Capesize sector, however, experienced a level of stability, as the surplus of available vessels counteracted the robust cargo volume in the Pacific region. Conversely, in the Atlantic region, there was an initial surge in activity for West Africa and East Coast South America routes at the beginning of the week, followed by a decline mid-week. This decline led to a decrease in rates in the region. The rise in Panamax rates can be attributed to a combination of factors, including a notable influx of grain cargoes from ECSA and a scarcity of available vessels for immediate use. In the Pacific region, despite a slowdown in Indonesian exports, both Australia and NoPac routes played a stabilising role in the overall sentiment. Furthermore, the substantial trade activity in ECSA, coupled with heightened grain exports from the United States Gulf (USG), has also contributed to the favourable performance of geared vessel sizes. Additionally, the limited availability of tonnage in the Pacific region has proven advantageous for owners’ earnings.Cape 5TC averaged $ 13,486/day, down -5.81% w-o-w. The transatlantic earnings decreased by $1,094/day with transpacific ones rising by $145/day, bringing transatlantic earnings premium over transpacific to $3,923/day.
Panamax 5TC averaged $ 13,188/day, up +17.98% w-o-w. The transatlantic earnings increased by $2,590/day while transpacific earnings rising by $1,400/day. As a result, the transatlantic earnings premium to the transpacific widened to $4,960/day.Supramax 10TC averaged $ 8,947/day, up +16.03% w-o-w, while the Handysize 7TC averaged $ 8,012/day, up +12.12% w-o-w .
The demolition market has seen an increase in activity with a notable number of vessels being sold for scrap. The steel market is picking up slightly, so offer prices are expected to increase. In India, despite the fact that there are no LC restrictions and scrapping is considered easier, Pakistan and Bangladesh are offering better prices. In terms of fundamentals, S&P Global expects the Indian economy to grow by an average of 6.7% to 2031, driven by increased manufacturing and an improved service sector. In Bangladesh, local breakers are offering better prices, but not everyone can get a letter of credit due to limited foreign exchange reserves. As a result, LCs are only available for smaller tonnages. According to the Bangladesh Bank, foreign exchange reserves currently stand at $23.14 billion, which is in line with IMF guidelines. In Pakistan, the LC restrictions are still in place, but some deals have nonetheless materialised and are awaiting approval. This is a growing problem due to low foreign exchange reserves. Local breakers are also offering higher prices. In Turkey, available tonnage is limited or non-existent as owners prefer sub-Asian destinations with better prices.
Steel production from the beginning of the year to May was down 19%, mainly due to the shutdown of mills following the earthquake earlier this year. Fundamentally, the country is in a position where the local currency is trading near all-time highs against the dollar, while inflation is rising rapidly and currently stands at 48%.
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Source : capital link