Panama Canal Backup Forces Detours For Asia-Bound Grain Vessels

• The Suez Canal route is a trouble spot as shipping companies cancel routes through the Red Sea in response to attacks by Houthi rebels in Yemen.
• A severe drought that has cut ship traffic through the Panama Canal is having ripple effects on the global food supply chain.
• This forces U.S. grain carriers bound for Asia to take lengthy detours through the Suez Canal or around southern Africa.

A severe drought that has cut ship traffic through the Panama Canal is having ripple effects on the global food supply chain, forcing U.S. grain carriers bound for Asia to take lengthy detours through the Suez Canal or around southern Africa, reports Nikkei Asia.

Delay in U.S. exports

Maritime transport accounts for over 80% of global trade, according to the United Nations Conference on Trade and Development. The bottleneck at the Panama Canal, a main maritime trade route through which roughly 13,000 vessels pass annually, threatens to raise food prices for Asian consumers.

The El Nino climate pattern has led to the lowest October precipitation on record in Panama, resulting in a drought that has depleted water levels in the canal.

In response, the Panama Canal Authority (ACP) limited the number of vessels passing through the waterway. The daily limit was lowered to 22 ships in December, down from the normal 36 vessels or so. The ACP said on Dec. 15 that it will raise daily transits to 24 in January, citing improved rainfall and water levels, but that figure remains well below the normal volume.

This has delayed U.S. exports of corn, soybeans and other grains now at peak shipping season. Grain carriers lack set schedules, and their fleet sizes are prone to fluctuate during harvesting periods. As a result, grain carriers have a harder time securing transit slots compared with cruise ships and container ships, which work on more regular schedules.

The ACP auctions extra transit slots, but winning bids for one slot can range from $1.4 million to $2 million. A $2 million bid would raise the cost of transporting grain from the U.S. to Japan by roughly 50%. Since the price per unit for grains is often too low to absorb the extra shipping costs, many grain carriers will be essentially priced out of the auctions.

Suez Canal detour

An increasing number of ships are taking long detours through the Suez Canal or around the Cape of Good Hope near the southern tip of Africa.

From Oct. 15 to 28, just five-grain carriers bound for East Asia passed through the Panama Canal, the U.S. Department of Agriculture said, down from 34 in the year-earlier period. At the same time, grain carriers transiting the Suez Canal nearly quintupled to 33 from seven a year earlier.

“Transit slot limits are imposed on each company, so adjustments are made daily,” said a manager at Japanese marine transporter MOL Drybulk. “While we make every effort to secure passage through the Panama Canal, when there is no foreseeable transit due to congestion or slot limitations, it is necessary to make decisions on whether to detour through the Suez Canal or elsewhere.”

The ACP assigns priority to shipping companies based on past transit volumes and other factors. Low-priority ships often have no choice but to take detours.

Charter rates for bulk carriers are rising as well. Spot rates for 80,000-tonne capacity Panamax carriers, the largest ships that can pass through the Panama Canal, stood at $21,966 a day on Dec. 4, up 69% from a month earlier and the highest since July 2022. Though the rates have eased in recent weeks, they remain 30% higher than previous levels.

Using the Suez Canal adds about 18 days each way compared with Panama, while the Cape of Good Hope adds around 22. These extended trips are causing a shortage of ship capacity. The overlap with peak shipping season for U.S. grain is amplifying the impact.

Suez Canal route: a trouble spot

The Suez Canal route is also a trouble spot as shipping companies cancel routes through the Red Sea in response to attacks by Houthi rebels in Yemen. On Wednesday, Denmark’s A.P. Moller-Maersk said it will resume Red Sea transit soon for dozens of container ships, but the regional situation remains unstable.

“Declining water levels in the Panama Canal and the Middle East tensions represent a double punch to grain shipment,” said a source at Japanese shipping broker Exeno Yamamizu.

The Cape of Good Hope route, the most distant option, may not be suitable for transporting food to Japan. This journey crosses the equator twice, meaning the changes in temperatures could affect the quality of the cargo.

The U.S. provided 65.4% of Japan’s corn imports and 71.4% of soybean imports in 2022, the Japanese Ministry of Agriculture, Forestry and Fisheries reports. If the disruptions in shipping persist, the impact could hit dinner tables.

“Although grain prices have fallen from their peak from the previous year, the rise in transport costs will push up procurement costs for Japan, which depends on imports of food, feed and other raw materials,” said Hideki Hattori, chief grain analyst at Japanese milling company Nippon.

The National Federation of Agricultural Cooperative Associations, or Zen-Noh, Japan’s largest supplier of feed, said on Dec. 19 that it will raise shipping rates for animal feed for the first quarter of next year. This is the first price hike since the third quarter of 2022, and the move was triggered by the higher shipping costs caused by the Panama Canal bottleneck.

“Panama will enter a dry season from January through April, so it’s hard to foresee water levels improving, so the effect from the transit restrictions will remain in place,” a Zen-Noh representative said.

Did you subscribe to our daily Newsletter?

It’s Free! Click here to Subscribe!

Source: Nikkei Asia

• 
• 
• 
• 
• 
• 
• 
•