One Company Paid $2.4 Million to Skirt Panama Canal Congestion
Merchants hoping for a happy holiday season will be keeping a watchful eye on the months-long drought at the Panama Canal, despite no signs the backlog is meaningfully affecting retail supply chain.
As of Tuesday morning, 116 vessels were queue at the Panama Canal, up from 108 as of Sept. 5, but down from the 135 awaiting on Aug. 29. Forty-seven were booked while 69 weren’t, according to the Panama Canal Authority (ACP), referring to those with an appointment to traverse the waterway.
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Low water levels forced officials to cap the number of kinds of ships that can safely sail through the canal. Ships can’t be more than 44 feet deep. Lake Gatun was just 79.6 feet deep as of Monday, off from the usual 85.5 foot depth it has averaged in September over the past five years.
The canal allows just 32 ships per day, down from 34 to 36 daily before the limit took effect. At the end of August, the ACP officially extended the restrictions for another 10 months through next July—indicating that the water problem will last for some time.
But the main reason there hasn’t been much concern regarding the retail supply chain is because container ships get priority passage over other carriers, including dry bulk carriers and liquefied petroleum gas (LPG) carriers. This means retail cargo is some of the least likely to experience a multi-day slowdown.
Amazon hasn’t felt an impact yet, with a spokesperson telling Sourcing Journal that the company doesn’t expect any customer delays as a result.
A Descartes Systems report indicates that delays have not materialized into the threat some had feared. If the canal impacted vessel schedules, August delays would have sequentially increased at East and Gulf Coast ports, but that hasn’t been the case so far.
Last month’s delays averaged 5.68 days across ports including New York/New Jersey; Savannah, Ga.; Charleston, S.C.; Norfolk, Va.; and Houston, down 4.7 percent versus July and flat versus June.
Descartes collects data on average transit delays for shipments to top U.S. ports, measuring the difference between the arrival date and the estimated date declared on bills of lading for inbound containerized cargo.
While Panama Canal deputy administrator Ilya Espino urged vessel owners last month to book slots ahead of time to avoid delays, it appears booking prices could be a big concern for shippers looking to get a prime spot.
According to Oystein Kalleklev, CEO of Avance Gas Holding, an unnamed company won an auction to pay $2.4 million per vessel to leapfrog the canal logjam last month.
This sum—in addition to standard transit fees that could range anywhere between $150,000 to over $1 million, depending on thevessel’s size and capacity—helped the payer’s carrier transit the waterway more quickly, Kalleklev said.
“You can skip the queue, but it’s immensely costly,” Kalleklev said in an Aug. 20 earnings call. “The Panama [Canal] has been increasing the number of auctions in order to keep the revenue stable,” noting that the price has since “rapidly” gone up—with bids escalating from $1 million, to $1.5 million and then $2 million.
With many ships carrying less-than-capacity loads or returning empty containers, most shipping firms have been able to comply with the canal’s restrictions and those awaiting passage as of mid-August were expected to complete their voyages without delay, according to Ben Hackett, founder of maritime consultancy Hackett Associates.
“We have closely followed conditions at the Panama Canal,” Hackett said in a statement. “It now appears, however, that the situation has had little impact on the retail supply chain and is unlikely to be a problem as we head into the peak shipping season.”
Vessels that haven’t booked yet might run into mounting delays.
Non-booked northbound vessels have seen an average of 4.8 days in queue Monday, hitting a month-to-date peak at 5.7 days on Sept. 6 and bottoming out at 3.9 days on Sept. 1. However, non-booked southbound vessels more than doubled their average wait times from 2.7 days on Sept. 5 to 6.0 days on Monday.
The canal is easier to traverse for ships on both sides when compared to August, according to ACP data. Wait times in August averaged 10.4 days for northbound craft and 9.3 for southbound.
