After experiencing its driest October month since 1950, the Panama Canal has gotten so clogged up that one shipper was willing to pay nearly $4 million to hop to the front of the queue.
Japanese oil conglomerate Eneos Group paid $3.975 million in an auction Wednesday to secure the crossing, according to a bidding documents seen by Bloomberg. The report did not indicate the value Eneos paid in additional transit fees, which could range anywhere between $150,000 to over $1 million, depending on the vessel’s size and capacity.
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The number exceeded the $2.4 million one unnamed company paid to bypass the buildup in August.
“You are getting close to $4.5 million to use the canal, so that is pricing out a lot of ships,” said Oystein Kalleklev, CEO of Flex LNG Ltd. and Avance Gas Holding Ltd., during a conference call Wednesday when asked about the state of the canal.
The drought-stricken canal has experienced more congestion than usual since the Panama Canal Authority (ACP) implemented draft restrictions in May. The ACP has since followed up with daily capacity restrictions, which previously allowed up to 36 vessels through the gateway per day, and are now at 24 vessels, where it will remain for the rest of November. Daily booking slots will drop to around 18 by February 2024.
Eneos Group secured the Nov. 15 slot for its liquefied petroleum gas (LPG) tanker, Sunny Bright, which will head northbound on the waterway after unloading cargo in China. The day before the auction, Bloomberg reported that the Sunny Bright might turn around and take an alternate route to the terminal in Houston.
Shippers without a reservation are taking different approaches to the problem. Some appear content to pay a steep price for a booking time days out, while others take a different course.
Luckily for apparel retailers and brands, LPG tankers and dry bulk carriers are most affected by the delays. Container ships, which most merchants use to transport their goods at sea, have the first crack at booking priority. This means retail cargo is less likely to experience multi-day slowdowns, especially if shippers reserve a spot more than 30 days in advance.
And with peak shipping season having already passed, most retailers have likely secured many of their goods for the holiday season.
That’s not to say container ships are entirely in the clear. As part of the draft restrictions, ships can’t exceed a depth of 44 feet due to the low water levels—down from 50 feet in May—meaning they must carry less cargo to meet the requirements.
As of 2 p.m. Friday, 46 pre-booked vessels are in queue for transit at the canal, while 66 non-booked vessels are waiting, totaling 112 ships overall.
Multiple daily capacity restrictions in November correlate with a rise in average queue wait times for non-booked vessels, ACP’s data shows. While the backlog was 2.5 days on average for northbound ships and 2.4 days for southbound vessels, the numbers have nearly doubled in the days since. As of Friday, the average non-booked ship waited 4.9 days before going northbound, and the southbound vessels took 5.2 days.
The Panama Canal continues to recommend customers make reservations to minimize delays.
In 2023, there has been 41 percent less rainfall than usual due to El Niño, the climate pattern that typically brings higher temperatures and less rain to the central and eastern Pacific Ocean. This has resulted in reduced water availability to the canal and its reservoir system.
The rainfall-fed Lake Gatun, which provides the water necessary to float vessels through the Panama Canal’s lock system, has an official water level depth of 80.5 feet as of Friday. This number remains significantly below the previous five-year average of 86.7 feet.
The authority has warned the restrictions are likely to persist through 2024, noting that short-term weather forecasts aren’t likely to improve.
“Therefore, with less than two months left until the end of the rainy season, the Canal and the country face the challenge of the upcoming dry season with a minimum water reserve that must guarantee supply for more than 50 percent of the population and, at the same time, maintain the operations of the interoceanic waterway,” said the ACP in an Oct. 31 shipping advisory to clients.