Asia – US trade facing Panama Canal disruption

The Panama Canal connects the Pacific Ocean with Atlantic Ocean and is a conduit for maritime trade from Asia to the US East Coast, greatly reducing transit times and avoiding the lengthy route around the southernmost tip of South America, but extreme weather conditions have slashed the number of vessels that can transit the Canal.

The Panama Canal handles about 6% of global trade and more than 70% of the cargo that passes through it, is either heading to or departing from the U.S. with 14,239 ships transiting the canal in 2022.

However, ships must float 85 feet above sea level, to cross the continental divide through a series of 12 locks, with 50-million gallons of fresh water lost into the ocean with each transiting vessel and restrictions caused by the driest year on record have disrupted operations in 2023 and will continue past June 2024.

The press reported last week that the number of ships waiting to transit the Panama Canal leapt by 13% in just 24 hours to 112, which is 22 above the average 90 vessel queue, but short of August’s peak of 160 ships waiting to cross.

The Panama Canal Authority (ACP) has been steadily reducing ship transit numbers and depth limits since the summer, which means bigger vessels, like neo-Panamax container ships cannot be fully laden and must unload containers on the Pacific side of the Canal and rail them across the isthmus for reloading to a vessel on the Atlantic side.

The allowable distance between the waterline and the hull bottom – the draft – has been reduced from 50 to 44 feet and for every foot of lost draft vessels lose equivalent capacity for around 350 teus, so the current loss of 6 feet of draft is 2,100 teus that have to be left in Asia or transhipped at the Canal’s entrance.

The ACP has cut daily vessel transit numbers from a maximum of 40 to 25 and just 18 from next February and while carriers have coped with the restriction reasonably well thus far, by spreading loads across vessels and adjusting speed to minimise wait times, can they maintain this ongoing.

With limits on container ship transits and vessel drafts remaining in place for at eight months and no certainty that restrictions may not remain in place longer, some carriers are questioning the long-term viability of the waterway and some may opt for a slightly slower, but more economical routing via the Suez Canal.

If you have concerns or questions about any of the issues raised in this article, we can review your situation and explain your options, including alternative carriers, ports and routes.

DM Stefan Holmqvist or EMAIL [email protected] for advice and insights.