With the count of waiting vessels having surged to 154, the Panama Canal grapples with a mounting pileup, compelled to reduce passage bookings for carriers in response to ongoing drought conditions. These arid circumstances have stirred turmoil in the key maritime passageway since spring. Currently, the expected waiting period to traverse the canal spans about 21 days.
Playing a vital role in U.S. trade operations aimed at Gulf and East Coast ports, the Panama Canal has a pronounced significance. The United States stands as the most substantial beneficiary of this conduit, accounting for approximately 73% of the total commodity exports and imports via the canal. Notably, an impressive 40% of the entire U.S. container traffic flows through the canal each year, representing a cargo worth around $270 billion.
This gridlock can be attributed to the water conservation initiatives implemented by the Panama Canal Authority in late July, prompted by the ongoing drought. The authority temporarily curtailed the booking slots for Panamax vessels—the largest ships eligible to traverse the canal—from August 8 to August 21. These vessels are capable of carrying 4,500 twenty-foot equivalent units (TEUs), which is the standard container measurement. Consequently, the count of pre-booking slots was downsized from 23 to 14 per day.
High-resolution satellite images captured by Planet Labs offer a visual account of the prevailing congestion.
As a continuation of these measures, the PCA has recently scaled down the daily transit capacity of the Panama Canal. Commencing on July 30, 2023, the canal’s daily throughput capacity was reset to an average of 32 vessels per day. This included 10 vessels in the newer Neopanamax locks, catering to larger ships, and 22 vessels in the older Panamax locks. This readjustment followed the initial capacity of 34 to 36 transits per day.
Consequently, ships without reservations are left in the waiting queue when daily capacity is restrained. According to the Panama Canal Authority, approximately 38% of the vessels in line possess reservations, while the remaining 62% do not. Consequently, the vessels without reservations must await their turn, allowing the reserved vessels to proceed through the canal first.
A temporary strategy has been introduced, enabling a first-come, first-served passage for up to five ships per day through the Panamax locks. While aimed at alleviating waiting times, a backlog of ships still persists.
The Panama Canal Authority recalled a similar backlogged situation last occurring in 2022. This previous incident stemmed from residual delays arising from the pandemic and the Ukraine-Russia conflict, both significantly impacting the shipping industry.
To further complicate matters, additional water level restrictions were imposed by the PCA in July. These restrictions necessitate vessels to be 40% lighter, directly affecting ships that were in transit when the requirements were enacted. For instance, the Ever Max was compelled to offload 1,400 TEUs at the Port of Balboa to meet the criteria for passage. Currently, the vessel remains anchored at the Port of Savannah.
Captain Adil Ashiq, overseeing North America for MarineTraffic, remarked that the vessels left behind might require alternative transport to complete their journeys. He further added that the situation might deteriorate before any improvement is observed.
It is notable that a single canal lock expends 50 million gallons of water during the passage of a single vessel. Gatun Lake, the primary water source for the canal, has reached a four-year low water level.
Given these challenging circumstances, Ricaurte Vásquez Morales, the administrator of the Panama Canal, emphasized the importance of transparent communication. He assured customers that they would be kept informed about booking slot availability through regular updates, fostering collaboration with shipping lines and stakeholders.
This ongoing congestion situation has triggered various consequences. Vessels either face prolonged wait times to traverse the canal or opt for alternative routes. The latter choice results in increased time and fuel expenses, with shippers resorting to multi-vessel routes, subsequently elevating freight costs and lead times. Ultimately, these additional costs could cascade down to businesses and consumers.
Recent data from supply chain intelligence firm Descartes underscores the ongoing preference for East Coast ports among U.S. shippers. Contrarily, the top five West Coast ports saw a decline of 4.1% in July, whereas the leading East and Gulf Coast ports exhibited a 4.1% increase within the same timeframe.
As the holiday season approaches, industry insiders like Stephen Lamar, President, and CEO of the American Apparel & Footwear Association, voice concerns about straining supply chains. Lamar cautioned that surcharges and vessel limitations could translate into elevated clothing and footwear prices for U.S. consumers.
Consequently, the CEO of logistics company OL USA, Alan Baer, speculates that shippers might need to explore alternate routes. While the Suez Canal could serve as an effective option for freight originating in the ASEAN region and certain parts of Southern China, it could extend transit times by seven to 14 days for Northern China and North Asia.
Notably, the energy sector is already undergoing diversions. Clean tanker delays have prompted these vessels to opt for routes leading to the Atlantic Basin, avoiding the Panama Canal. Cheniere Energy, for instance, declared its intent to circumvent the canal for LNG shipments due to prolonged wait times. Even coal traffic and shipments to India are facing repercussions, with a notable decrease in exports.
In a world where global shipping remains intricate and interconnected, the Panama Canal’s current challenges and adaptations ripple through industries and markets, underscoring the need for flexibility and resilience.
