Panama Canal Restrictions to Bleed into 2024; Suez Canal Growth

The Panama Canal, a critical maritime passage linking the Atlantic and Pacific Oceans, faces ongoing challenges due to persistent low water levels. This situation has led to significant restrictions on transit capacity, reshaping global shipping and trade dynamics with disruption likely to extend well into 2024.

Restriction Timeline: The Canal Authority has progressively reduced booking slots, impacting vessel transits. The timeline shows a steady decline:

• November: 24 slots
• December: 22 slots
• January 2024: 20 slots
• February 2024: 18 slots

Impact on Trade Routes: These restrictions have nudged shippers towards alternative routes, particularly affecting trade between northeastern Asia and the U.S. Approximately 46% of container movement from this region relies on the canal.

Strategic Responses: The market has adapted with higher blank sailings and prioritization of lighter containers. This shift has resulted in a 2% to 10% weekly decrease in capacity from Asia to the U.S.

Moreover, the canal's bottleneck has specific ramifications for propane traders. With U.S. inventories at record highs and Asian demand surging, delays in the canal have led to significant cost implications, even prompting a shipper to pay $2.85 million to bypass the waiting line.

The constraints also coincide with the growth of the Suez Canal as a viable alternative for Asia-U.S. East Coast trade, further complicating routing decisions.

1. Major Shift to Suez Canal: The drought's impact has prompted a substantial shift in trade patterns, with a majority of dry bulk vessels now choosing the Suez Canal route over Panama. This redirection is particularly evident in U.S. grain cargoes bound for China and Asia.
2. Executives' Insights: High-ranking officials from leading shipping companies like Eagle Bulk and Genco Shipping & Trading confirm this shift. They note that routing ships through the Suez Canal adds approximately 10 days to the journey and increases costs, but it's becoming necessary given the Panama situation.
3. Freight Rate Increases: Rerouting has resulted in fewer vessels available for loading American grain exports, significantly pushing freight rates. For example, Eagle Bulk fixed a ship out of the U.S. Gulf at $32,000 per day for a trip to the Far East via Suez, compared to the average global spot rates of $12,400 per day.
4. Geopolitical Concerns: The reliance on the Suez Canal isn't without risks. The canal has a history of closures due to military action, and current geopolitical tensions raise concerns about potential future restrictions.

Sources: Supply Chain Dive | Detroit News | Journal of Commerce | FreightWaves