Panama Canal Imposes Shipping Restrictions Amid Severe Drought Conditions

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Credit: Panama Canal Authority

A severe drought affecting the Panama Canal is forcing container vessels to lighten their loads and pay higher fees, with further increases in the cost of shipping cargo through the canal expected this summer.

Reduced Drafts

The largest vessels will have to reduce their drafts — how low they sit in the water — by carrying less or cutting the weight of their cargoes as of May 24, followed by another decrease that kicks in on May 29. Some major ocean carriers have also announced new fees for goods shipped on the route as of June 1 in response to the canal restrictions. These measures are likely to result in delays and higher costs for goods that are shipped through the canal, which typically sees 5% of annual global maritime trade pass through its locks.

Rainfall was less than 50% of normal from February to April near the canal and the lakes that feed it. That amount of rain ties with 2019, which saw the lowest level in two decades, according to Everstream Analytics. And there’s no sign of the rainy season that typically starts ahead of summer. Water levels in Lake Gatun, the largest of two lakes that feed the canal, are projected to hit historic lows by July, restricting ships’ drafts and how much cargo they can carry.

LNG Carriers

LNG carriers, which are highly dependent on the canal, are not as affected by the draft changes because the vessels have fewer draft restrictions than those carrying heavier industrial goods or commodities. But any bottlenecks are a cause for worry considering that US LNG export expansions are due to come online in the next five years. The 44-foot draft restrictions are set to reduce space for most shippers on Neo-Panamax by 40%, according to Nathan Strang, director of ocean freight at Flexport Inc., a freight forwarder. Some shippers will have to split heavier cargo into two containers instead of one, Strang said, with vessels carrying heavier commodities affected more. These measures could cost importers and retailers using the route an extra $1,500 per container, he said.

“If you ship two containers a week at 12 tons each at roughly $3,000 apiece then you’ll need to ship three containers. So your price per shipment went from $6,000 to $9,000,” Strang said. And for shippers who typically move 25 tons per container, they’d now need three or four boxes. “That’s a much bigger hit and those shippers simply won’t use the canal,” he said. Asia-to-US cargo can take alternative routes through the Suez Canal. Or they can use ports in southern California, which would involve loading containers onto trucks or trains bound for Midwest and East Coast population centers. 

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Source: Newsyahoo

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