Current weather forecasts for the Panama Canal area indicate steady rainfall from late April that will last for “a few months”, allowing the Panama Canal Authority to normalise conditions by 2025, the Authority has said. However, it warned, normalisation is dependent on the forecasts. If the volume of rain falls short of expectations, then there could be further restrictions on daily passage or draught.
Still, the Authority noted, moderate rainfall would allow the Canal to increase slots over time to the 36 slots typically offered during the rainy season.
Around 50 or so vessels are awaiting to transit the Canal on any given day, and they have an average waiting time of about 2.5 days (compared to about 3.8 days for the same period in 2022). About 27 slots are currently offered daily. The majority of ships have reservations and routinely arrive ahead of their allotted transit date so that they can refuel or replenish supplies, the Authority has commented.
The impacts of climate change are the culprit for less rainfall, the Authority reckons. Rainfall – or the lack thereof – has been quite the issue over the last 12 months. The 2023 financial year was the least rainy year in Panama Canal records (which date back to 1951), with 1,998 mm of rain. A similar volume was observed in 2019 when 2,035 mm of rain fell. However, in the interim years, there was a considerably higher volume of rainfall, rising to 2,865 mm in the 2022 fiscal year.
Looking forward, the Authority notes that, while a “robust” water management system has become a critical priority, there are no technical solutions that will fully meet the growing demand for water. The Authority therefore delivered a proposal to the Panamanian Government to firstly, re-define the Canal Watershed and modify / expand the limits established in 2006, and, secondly, to eliminate restrictions that would prevent the construction of a new reservoir.
A timeline of recent changes
October 2023 – the Canal Administrators note that the Gatun Reservoir received a daily rain- and river-inflow of seven million cubic metres, which is less than half the 15m cubic metres expected. The system is in deficit to a volume of three million cubic metres. Rainfall drops by 41% lower than normal. The Authority notes that the year has been particularly dry owing to the effects of the El Niño weather phenomenon. The Authority announces progressive series of cuts to 18 transits a day by February 2024.
November 2023 – the Administrators announce changes to the auction system to ensure that it is more equitable and reflective of the market in terms of cargo type, market segments, and the like. Vessels are grouped into three separate categories.
December 2023 – water-saving measures and an improvement in rainfall enable an increase in slots in January 2024 rather than the planned cuts.
January 2024 – the first-ever Chief Sustainability Officer, Deputy Administrator Ilya Espino de Marotta, is appointed by the Panama Canal. She is tasked with the development of a more comprehensive sustainability strategy focused on decarbonization, adaptation, and transition.
March 2024 – based on the projected level of water of Gatun Lake, the Panama Canal announces an increase in the number of daily slots for just after mid-march. The Canal Administrators also advise that the number of slots to be offered through auction may further increase.
World trade and the Panama Canal
The Panama Canal provides data in “long tons”, which is 2,240 pounds (British Imperial Weight / U.S. Customary Weight) whereas the metric tonne (1,000 kg) is 2,204 pounds. In the 2023 Panama Canal Fiscal Year (which begins in October and ends in September) about 269.46 million long tons of cargo transited the Panama Canal. Of that, about 98.85 m long tons (about 36.68%) transited from the Pacific to the Atlantic while 170.61 m long tons (about 63.32 %) transited from the Atlantic to the Pacific. For every long ton that went from the Pacific to the Atlantic, about 1.72 long tons went the other way.
The top countries served by the Canal are the United States (206.24m long tons of cargo, which includes both origin and destination cargo; i.e. about 76.6% of all Panama Canal cargo traffic begins or ends in the US); meanwhile, in a far-distant second place is China with 64.36 m long tons; followed by Japan with 41.26 m long tons).
Cargo shipped through the Canal includes a massive range of goods including but not limited to ores and metals such as aluminum, copper, and iron; animal / vegetable oils and fats; canned and refrigerated foods such as fish, fruit, veg, meat and bananas; chemicals such as ammonium compounds, caustic soda, methanol, benzene, toulene and more; coal; coke; containerised cargo all kinds; grains – barley, corn, rice, sorghum and more; lumber and products such as boards, pulp, plywood; and every manner of equipment, vehicle, and machine.
The Panama Canal connects 1,920 ports over 170 countries and enabled 140,080 vessel transits in Fiscal Year 2023. Last year, container ships were the most frequent users of the Canal with 2,787 transits, and that was closely followed by dry bulkers with 2,649 transits. In third place were chemical tankers with 2,196 transits. If traffic is delayed at Panama then that delay can partially reduce capacity in the world fleet, which, over time, could put upwards pressure on freight rates (which is not the same thing as saying it would cause freight rates to rise as there are numerous factors such as overall capacity, bunker prices, spot cargo / space supply and demand among many others that factor into rates).
Draught restrictions in Panama, as we saw over the last six months or so, potentially have an impact on world shipping as they can take a bite out of fleet capacity. Cargo then typically will be shipped at a higher cost (because of canal auctions, vessel diversion, modal shift (e.g. going by rail or air for all or part of the journey) or, in rare cases, being swapped into a non-container ship (as we saw in COVID, some large shippers resorted to chartering small bulk vessels). Shipping lines may have to put vessels into service from elsewhere, which may or may not have an impact on services offered depending upon where those other ships come from. In the worse case scenario, if the other ships are pulled from other trades then that can result in a cut in service. Consider, for example, if a weekly service is cut to fortnightly: that’s a 50% cut in service capacity. Vessels can be put into service from the idled fleet though (if there is an idled fleet, that is – the idled fleet metaphorically evaporated during COVID), and there can be a cascading effect as shipping lines shuffle their services to optimise their product offerings based on ever-changing circumstances around the world.
Oceania trade and the Panama Canal
For the 2023 Panama Canal Fiscal Year, the Authority reports that Oceania origin / destination cargo stood at 4.84 million long tons, about 1.8% of the total volume. About 1.7m long tons transited the Canal from the Atlantic to the Pacific – and about 89% of that was sourced from the US East Coast – while approximately 3.11m long tons transited the Canal from the Pacific to the Atlantic – and the overwhelming majority of that – just over 71% – was headed to the US East Coast.
Shipping Australia collates on the container trade to / from our box ports. In the 2023 calendar year, about 6.4% of our container trade either originated from or was destined for the Americas (North and South; Central America figures include the Caribbean); however, those statistics do not distinguish between West Coast (i.e. non-Panama Canal) and East Coast (Panama Canal trade). The vast majority of Australia’s box trade, approximately 71.4%, either originates from or is destined to, a place in Asia.
Although the Oceania trade through the Canal is small relative to the total volume, if you are a shipper or consignee that relies on a particular set or volume of cargo from the other side of the Canal, then any restriction or cost increase is unhappy news and, conversely, and liberalisation or cost decrease is happy news. And, for our larger shipping line members, who have ships that transit the Canal every day, it’s of vital importance. And, as we noted above, there are a range of indirect impacts to disruption.
So any normalisation of service through the Panama Canal is to be welcomed.
