Alarming! Dramatic new cuts to the Panama Canal

Sequía Canal de Panamá 2

Alarming! Dramatic new cuts to the Panama Canal

Alarming! Dramatic new cuts to the Panama Canal 1024 576 ICI Coverage

Panama's persistent drought is relentless, and the El Niño weather phenomenon is wreaking havoc on the country's canal management planning.

The Panama Canal Administration warned yesterday that, after the driest October on record, the volume of daily transits will be further reduced.

At its maximum capacity, the canal can handle 40 vessel transits a day, a figure that has been eroded this year due to months of record drought. Simultaneously, canal managers have been forced to reduce the maximum draft limits for vessels passing through the Neopanamax locks by almost 2 meters.

In 2023, rainfall has decreased by 41% less than usual, pushing Gatun Lake to unprecedented levels for this time of year. The lake is a vital source of fresh water for ships to transit and to supply water to more than 50% of the country's population.

Starting this week, the number of reservation slots will be reduced from 32 to 25, and starting next week and for the rest of November, administrators have decided to reduce reservation slots to 24. In December, with El Niño expected to keep the weather unusually dry, slots will be further reduced to 22, with 20 planned for January and, from February and until further notice, the number of reserve slots will be reduced to 18 per day, less than 50% of the prom

"Booking slots are now crucial and unbooked vessels may face indefinite delays. Please book your transit space as soon as possible before the arrival of your vessel to avoid significant delays," Wilhelmsen port agents warned.

Además del caos climático, Panamá ha sido escenario de protestas contra los derechos mineros en las últimas semanas, que están programadas para continuar. Estas protestas han provocado cierres de carreteras en áreas críticas de Panamá y Colón. Aunque no ha habido interrupciones significativas en las operaciones del canal y del puerto, Wilhelmsen advirtió esta semana que la situación podría cambiar si los bloqueos en las carreteras se intensifican.

"Please be prepared for potential delays and erroneous deliveries of spare parts, as well as disruptions to crew movement if protests continue in the coming days or weeks," Wilhelmsen warned in a note to customers.

Delays caused by transit and draught limitations on the waterway have led to increased rates for some types of vessels, especially VLGCs.

Nonetheless, channel managers have managed to keep the queues under control. Currently, there are 97 vessels queuing for transit, seven more than the seven-year average and a far cry from the more than 160 experienced in August.

As for dry bulk, there is a growing consensus that more large vessels will seek to head to the southern tip of the Americas rather than wait in the canal. U.S. corn, wheat and soybean exports are expected to be boosted in the coming months after a strong agricultural year.

"Despite the restrictions at the Panama Canal, the market could find an alternative and use larger vessels to circle Cape Horn into the Pacific, increasing tonne-mile demand and supporting larger vessels," suggests a recent report by Greece's Xclusiv Shipbrokers.

As for containers, Judah Levine, head of research at online container booking platform Freightos, said low-water restrictions at the Panama Canal have not yet significantly affected container flow. However, the newly announced reductions could send more volumes to the U.S. West Coast or through the Suez Canal in the coming months.

An analysis of canal authority data by S&P Global shows that the decline in transits has fallen mainly on medium-sized vessels.

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