A ship navigates through the Panama Canal within the put attain the Americas’ Bridge in Panama City on April 24, 2023. The shortage of rainfall due has forced the Panama Canal to reduce aid the draft of ships passing through the interoceanic waterway, within the midst of a water offer disaster that threatens the long stride of this maritime route, reports CNBC.
The sequence of vessels waiting to scandalous the Panama Canal has reached 154, and slots for carriers to book passage are being reduced to be in a teach to govern congestion ended in by ongoing drought prerequisites which fill roiled the basic transport gateway because spring. The present wait time to scandalous the canal is now around 21 days.
Huge pileup as a result of water conservation measures
The Panama Canal is a severe alternate link for U.S. shippers heading to Gulf and East Hover ports. The U.S. is the finest consumer of the Panama Canal, with total U.S. commodity export and import containers representing about 73% of Panama Canal traffic. Forty percent of all U.S. container traffic travels through the canal every yr, about $270 billion in cargo.
The huge pileup is a consequence of water conservation measures the Panama Canal Authority deployed in leisurely July on account of drought. The PCA has temporarily decreased the provision of reserving slots from August 8-August 21 for Panamax vessels, which may perchance be the finest vessels that can scandalous the canal. These vessels can raise 4,500 twenty-foot identical objects (TEUs). The sequence of pre-reserving slots changed as soon as it reduced to 14 each day from 23.
This latest reduction in bookings is on the heels of the PCA reducing the number of vessels allowed to go through the canal in a day. Starting on July 30, 2023, the daily transit capacity of the Panama Canal was adjusted to an average of 32 vessels per day (10 vessels in the newer Neopanamax locks, which serve the larger vessels, and 22 vessels in the older Panamax locks). Before the water conservation measures, transits were 34 to 36 a day.
When the daily capacity is reduced, ships lacking reservations are compelled to wait in line. The Panama Canal Authority tells CNBC 38% of ships waiting have reservations. The remaining 62% of ships do not, which means they have to wait for the vessels with reservations to proceed across the canal.
A temporary measure was put in place where five ships a day on the Panamax locks can traverse the canal on a first come first served basis. The measure is designed to help reduce waiting times, but backlog remains.
The PCA told CNBC that the last time a backlog of vessels like the current situation was in 2022, when the world of shipping was impacted by residual delays from the pandemic and the conflict between Ukraine and Russia.
Lower water level restrictions imposed
Additional lower water level restrictions imposed by the PCA in July also require vessels to be 40% lighter, impacting vessels that were in transit when the requirements were implemented. The Ever Max was forced to unload 1,400 TEUs at the Port of Balboa in order to meet the requirements and gain passage. The vessel is currently anchored at the Port of Savannah.
“Those containers left may need another vessel to complete the journey,” said Captain Adil Ashiq, head of North America for MarineTraffic. “This is going to get worse before it gets better,” he said. A canal lock uses 50 million gallons of water when a single vessel traverses the canal. Water levels in Gatun Lake, which feeds the canal, are at a four-year low.
Ricaurte Vásquez Morales, administrator of the Panama Canal, said that considering the changing circumstances, the canal is maintaining an open line of communication to keep customers informed about booking slot availability. “Through regular updates, transparent dialogue, and close collaboration with shipping lines and stakeholders, we strive to manage expectations and provide real-time information that enables our customers to make informed decisions,” he said.
Ashiq explained that vessels have to wait longer to transit the canal or ocean carriers make a business decision to take alternative routes, which add time and fuel costs to the journey. Shippers using multiple vessels to move their freight adds to freight costs, and longer lead times to secure bookings. He said that these costs may end up being passed down to businesses and consumers.
Recent data released by supply chain intelligence firm Descartes shows the East Coast ports continue to be the preference for U.S. shippers. The top five West Coast ports showed a decrease of 4.1% in July, and the top East and Gulf Coast ports experienced an increase of 4.1% during the same timeframe.
“Now is not the time to further stress supply chains that are still straining under ongoing logistical pressures,” said Stephen Lamar, president and CEO of the American Apparel & Footwear Association. He said surcharges and vessel restrictions will likely mean higher clothing and shoe prices for U.S. consumers this holiday season.
Alan Baer, CEO of logistics company OL USA, told CNBC that shippers may have to start looking at other routes. “With the increasing difficulty of reaching the U.S. East Coast via the Panama Canal, importers may be looking at vessels transiting the Suez,” Baer said. He added that this can be an effective solution for freight originating in the ASEAN region and some Southern China origins. However, for Northern China and North Asia, deviation via the Suez can add seven to 14 days of additional transit time.
Energy sector diversions are already happening
Diversions are already happening in the energy sector. The mounting delays have clean tankers, which carry refined petroleum products, avoiding the canal, shifting their preference to book routes to the Atlantic Basin, according to S&P Global. Data from its Commodities at Sea unit shows that in the combined June to July period, U.S. Gulf Coast clean petroleum product exports using the canal and traveling to the West Coast of South America slowed by 82% year over year. Exports in July, specifically, were down 12% year over year.
Cheniere Energy announced in July that it would avoid the Panama Canal to ship LNG because of the wait times. The canal is the quickest route for the LNG market to reach Asia. Coal traffic is also being impacted and making adjustments. India is a big importer of U.S. coal and vessels carrying the commodity also use the Panama Canal.
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Source: CNBC
