Panama Canal Could Authorize New Round of Restrictions
Delays at the drought-affected Panama Canal drought could stretch on for the foreseeable future, according to the agency that oversees the waterway connecting the Atlantic and Pacific Oceans.
The canal could tighten up the number of vessels allowed to sail if the drought continues, said Ricaurte Vásquez, administrator of the Panama Canal Authority (ACP).
More from Sourcing Journal
Bed Bath & Beyond Files FMC Complaint Against Cargo Line That Sued it in April
One Company Paid $2.4 Million to Skirt Panama Canal Congestion
The canal doesn’t have any restrictions planned for September, according to Vásquez. But in the budget for the fiscal year beginning October, the canal could reduce daily transits from 32 to 30 or 31.
If the drought extends beyond 12 months, the canal could be forced to change its weather modeling, which could trigger additional restrictions, Vásquez added. The drought concerns are compounded by the fact Panama’s six-month dry season doesn’t begin until late November.
“We do not believe that the canal will suspend operations,” he said in a press conference Tuesday.
As of Friday morning, 122 vessels were waiting to pass through the Panama Canal, with 46 being booked and 76 with a reservation, down from the peak of 163 ships queued on Aug. 9. Northbound and southbound wait times are similar at 5.9 days and 6.1 days, respectively.
The current 32-ship limit is down from the usual average of 34 to 36 ships. Vessels can’t sit deeper than 44 feet, instead of the usual from 50 feet. Vásquez said the canal would limit daily passage even further before tightening draft restrictions, which would mean shippers couldn’t load as much cargo onto each vessel.
“We will manage the water levels and we are looking for long-term solutions to maintain 44 feet of draft,” Vásquez said. “If we have to consider transit reductions, we will. This would be to continue with a draft of 44 feet. We will not reduce draft. If we do that, it will impact 70 percent of our shippers.”
Vásquez noted that container vessels are lightening their load based on the prior draft restrictions, by transferring cargo at the rate of 600-to-800 boxes at one terminal at the Panama Port and transferring those via rail to the other side.
“They’re limiting some of the larger tankers that are going through, so the limit of weight restrictions has impacted us a little bit,” said Charles Klein, the station manager for OEC Group‘s Detroit office. “Some of our customer base has to be really careful about how they’re loading their cargo. Heavier cargo is going to be scrutinized a little bit more from the steamship lines.”
Lake Gatun was just 79.6 feet deep as of Friday, down from the average 85.5-foot depth in September over the past five years.
“This [El Niño] phenomenon has been very severe this year, and it is expected because it’s so unusual when we have hot temperatures in the Pacific and the Atlantic simultaneously, that this will be a pervasive situation that is going to extend probably well into next year calendar year,” Vásquez said.
To improve flow, the canal administrators have decided to make two slots of the Panamax locks—for smaller ships that carry up to 5,000 20-foot equivalent container units (TEUs)—non-auctionable and to award them to ships that have been waiting the longest. The temporary suspension, implemented on Tuesday, will last through Sept. 30.
The measures implemented so far have effectively minimized significant delays, especially for container ships that could book ahead of time, limiting disruption to the apparel supply chain.
At OEC, Klein said the freight forwarder’s clients have seen some delays, but “honestly, they’re not as bad as we thought they were going to be when this initially started to happen.”
The canal itself may suffer the largest impact, with Vásquez saying that the drought could erase approximately $200 million in revenue from the waterway in 2024.
Klein said shippers should maintain communication with partners to find alternative routing options.
“Communicate with your steamship line partners and your freight forwarding partners,” Klein said. “Be transparent about your shipping plans for the next three months. We have [China’s] Golden Week coming up, and then, further down the road, you have Chinese New Year. Communicate—what kind of cargo are you moving? Is it urgent cargo? Is it just inventory you can wait on? Then you kind of make the best decisions on what to do.”
