Logistically Speaking...what's a shipper to do about the Panama Canal?
Release Date: 12/27/2023
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Logistically Speaking...What Are Cargo Owners To Do About The Red Sea?
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If a butterfly flaps its wings in Asia, a wave crashes against the coastal United States some period of time later, or so the adage goes. Since the attack in Israel last October, besides what is transpiring inside of Gaza, all eyes have been on the Red Sea. The Houthi rebels, whose history in Yemen goes back much further than most people are aware, have made targeting shipping interests a means to gain the world's attention. The Houthis have said that the attacks on ships and seafarers will continue until such time as there is a cease fire. Most recently, the crew of a UK-flagged vessel was ...
info_outlineFeaturing:
- Host Scott Case, Position : Global
- Host Cameron Roberts, Roberts & Kehagiaras
- Guest Deputy Administrator Ilya Espino de Marotta, Panama Canal Authority
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If you're in the maritime or logistics business, of course you know about the Panama Canal.
The evolution of global maritime activities, both commercial and military meant that when the Canal first opened in 1914, containerized shipping wouldn't follow for another 50 or so years when Malcolm McLean came up with the idea. The original locks are 110 feet wide and when the canal opened, saw 1000 ships traverse the passage.
As ships grew larger, transporting goods in containers as well as oil and liquified natural gas, the need for a wider passage was required. The maximum number of containers for a ship utilizing the two original locks is approximately five thousand twenty-foot equivalent units, or TEU's
The Canal Authority began work on the third set of locks in September, 2007 and began commercial operations in June, 2016. The so-called Neopanamax class of ships were 1,400 feet in length, 180 feet wide and a draft of 60 feet.
Even though the newest ship builds today exceed 20,000 TEUs, or twenty-foot equivalent units, the Canal can accommodate ships up to 14,000 TEU's, plenty for vessels operating between Asia and Europe and the US East and West coasts and South America.
Which brings us to the topic of today's conversation - according to Wikipedia, it takes an average of fifty-two million gallons of fresh water for the single passage of a ship.
Panama has been experiencing a drought compounded by the current El Nino weather pattern and Gatun Lake, the freshwater lake 85 feet above sea level which feeds the Canals, has forced the Canal Authority to reduce the number of transits.
The total number of transits declined 22% in November versus October and while the greatest impact was felt on the original set of locks, it has now reached the larger Neopanamax locks. Those dropped 28% in November versus October.
There were 10 daily reservation slots for Neopanamax transits at the beginning of November. By Dec. 1, there were just six. On Jan. 1, the number of slots falls to five.At the beginning of November, there were 22 daily reservation slots at the Panamax locks. By Dec. 1, there were 16.
In mid-December, the Canal Authority said it will increase the number of booking slots available in the locks. From mid-January, there will be 24 transit slots per day, compared to the 18 it had planned in a prior announcement. The additional slots will cover the regulars, supers and neopanamax vessel categories.
Vessels are now instead choosing alternate routes, opting to travel down the western coast of South America, crossing the Strait of Magellan at the continent's southern tip and up the east coast. Alternately, they can choose to enter a bidding war and pay a premium price for one of the few available slots.
Add to this the issues in the Red Sea, with ship operators choosing to travel south around Africa, adding time to those sailings and creating a cascading effect of late port arrivals and departures and - no surprise - potential imbalances. While they won't rival what we saw at the start of the pandemic - a scar that any shipper in the business still bears from the spring of 2020, with ocean rates bottoming out and carriers parking capacity, it means shippers will have just another supply chain challenge to manage.
So, if the weather isn't changing anytime soon and even if there was an immediate deluge of rain that refills the lake, the question still stands:
Logistically speaking, what are shippers to do about the Panama Canal?
Source material:
Panama Canal Authority: https://pancanal.com/en/
Wikipedia: https://en.wikipedia.org/wiki/Panama_Canal
FreightWaves: Imports Dragged Down: https://www.freightwaves.com/news/us-imports-dragged-down-by-seasonality-panama-canal-crisis?oly_enc_id=9463F2055834A1T
Wall Street Journal: https://www.wsj.com/finance/commodities-futures/the-worlds-key-canal-is-clogged-up-winter-fuel-prices-could-get-wacky-3a35e15d?mod=djemlogistics_h
Reuters: Drought Hits Shipping Slots: https://www.reuters.com/business/drought-hit-panama-canal-increase-shipping-slots-2023-12-15/