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Global News Panama Canal delays raise risks for shippers, but not yet biting

Registration dateAUG 24, 2023

Michael Angell, Associate EditorAug 11, 2023, 5:05 PM EDT
Articles reproduced by permission of Journal of Commerce.

Michael Angell, Associate Editor
Aug 11, 2023, 5:05 PM EDT
Articles reproduced by permission of Journal of Commerce.

Panama Canal delays raise risks for shippers, but not yet biting Some ocean carriers are limiting capacity for heavy and dense freight due to the Panama Canal’s draft restrictions. Photo credit: BlackMac / Shutterstock.com.
Vessel and draft restrictions on the Panama Canal have not affected most shippers — at least not yet — but the resulting queue of container ships waiting to transit the canal does bear watching for importers moving goods into the US for the coming fall and winter seasons.

On Tuesday, the Panama Canal Authority reduced the total number of ships that can pre-reserve a transit to 14 from 19, with that reduction expected to last through Aug. 21. The reduction means fewer than 34 ships can move through the canal in both directions daily, compared with the 34 to 42 it can handle at peak capacity. The reduction in the number of ships followed a move in June by the Authority that reduced the maximum draft for neo-Panamax vessels from 50 feet to 44 feet.

The latest restrictions come as a drought has reduced the level of Gatun Lake, which provides the fresh water for the canal’s locks, to about 79 feet, compared with a five-year average of 85 feet.

With the reduction in daily transits and maximum draft — the latter of which means vessels have to run lighter than usual — wait times on both sides of the canal are increasing. Port agency WaterFront Maritime Services said in a notice Thursday that neo-Panamax ships are waiting up to 18 days before transiting the canal northward, with similar delays for southbound transits.

So far, however, those delays have not translated into a significant increase in late arrivals at US East and Gulf coast ports. A cargo operations analyst at the Port of New York and New Jersey who asked not to be identified said there’s been “no impact so far” on vessel schedules to the largest East Coast seaport.

“Vessel capacity utilization is very low right now, so the impact shouldn’t be that significant since there’s capacity to absorb,” the analyst said. “It’ll be a few weeks” before delays are seen at the port.

A Gulf Coast cargo analyst said the Port of Houston’s draft limits are already below those of the canal, so vessels calling the region’s busiest gateway have not faced cargo limits.

Joe Monaghan, CEO of New Jersey-based forwarder Worldwide Logistics Group, which moves about 50,000 TEUs annually in the trans-Pacific trade, told the Journal of Commerce he’s seen “a little bit of a shift” in customers using Suez Canal services for their freight. But his customers are mostly used to long transit times to the East Coast, so the recent delays at the Panama Canal have not been a factor in those decisions.

“We’ve talked to customers about it and offered contingencies, but they don’t seem ready to make changes yet,” Monaghan said. ‘Where’s my freight?’ Monaghan said shippers of heavy and dense cargo, such as building and industrial materials and machine parts, have already been affected by the draft restrictions. Some ocean carriers have reduced the maximum acceptable payload for a 40-foot container to 15 metric tons from the usual 20 to 22 metric tons, he said. For 20-foot containers, which are often used for overweight items, some carriers have reduced maximum payloads to seven metric tons compared to 15 metric tons previously.

Even so, other carriers are still accepting heavyweight cargo. Moreover, carriers have not been too aggressive in asking for Panama Canal surcharges, even though they have posted notices for them, Monaghan added.

A pricing analyst for a Chicago-based forwarder who asked not to be identified told the Journal of Commerce that five ocean carriers that implemented Panama Canal surcharges earlier this year “rolled it into the ocean freight rate a while back.”

Still, Monaghan said the delays are worth watching for other shippers. Should the delays increase, it would put more pressure on rates and vessel capacity, along with squeezing space on transloading and rail services from the West Coast to the Midwest.

“Customers haven’t seen the delays they are going to be seeing,” Monaghan said. “We’re expecting very soon people are going to start saying ‘where’s my freight?’”
· Contact Michael Angell at michael.angell@spglobal.com and follow him on Twitter: @michael_angell.