The media has been extensively reporting on the situation in the Panama Canal after it introduced restrictions to draft levels and daily transits of ships. With this market assessment, Kuehne+Nagel seeks to update customers and shed light on how the current state impacts container shipping.

Current Situation

Extended drought conditions in Panama pushed the canal’s authority to introduce a number of measures that help it navigate the flow of cargo amidst low water levels. The current restrictions are:

• Draft levels are restricted to 44 feet (13.4 meters) for Neopanamax and 39.5 feet (12.04 meters) for Panamax locks.
• Allowed daily transit is 32 vessels (down from an average of 36): 10 Neopanamax and 22 Panamax locks.
• Media reports cited officials in the canal as saying that the restrictions could remain in place for ten more months. While this remains a possibility if drought conditions extend, no official announcement was made.

Europe <-> Latin America trade

Carriers, so far, are not reporting major operational disruptions for their container ships at the canal. Similarly, shipments arranged by Kuehne+Nagel between Europe and Latin America have not faced significant waiting times until now. We remain in regular conversations with carriers, and they have confirmed that they book the slots to cross the Panama Canal 2 – 3 months in advance. As a result, they have been crossing according to their itinerary without major delay.

USEC <-> Latin America trade

For US East Coast shippers, heavy 20’ shippers are being impacted, while average weight 40’DV / 40’HC shippers are seeing very little change in space availability. Some carriers are discharging before transiting the canal, either to port or rail, in order to lower weight when crossing. As the market is witnessing relatively lower vessel capacity utilisation, containers sailing between the two continents have not been severely impacted.

Asia <-> North and Latin America trade

The size of ships accessing the channel from Asia is usually larger than other trades as they need to carry bigger volumes. As a result, their capacity to stick to draft restrictions is lower. In a recent advisory, Maersk noted the operational adjustments at the canal had a particular effect on the largest vessels deployed on the Asia/US East Coast route. Kuehne+Nagel continues to monitor the situation and any possible impact on the market ahead of peak season. For the Pacific eastbound into Mexico, West Coast South America and West Coast Central America, approximately 85-90% of all services call at the pacific ports of Panama and hence don’t have to cross the canal.

Statistics from the Panama Canal

The latest weekly update by the Panama Canal, issued on 5 September, reported an improvement in the number of vessels waiting to transit. "There are 20% less vessels waiting in total since last week (135), which is normal for this time of year," says the update. Nevertheless, the lack of rainfall continues to impact Gatun Lake.

We have been monitoring the vessel statistics provided by the canal’s authority over the past week (Week 35) to give a view of the situation. While the data provided by the canal’s dashboard does not differentiate between the types of vessels, it could give an indication of the traffic over time.

The data shows that the transit backlog at the Panama Canal has been rather stable in the past week, with no signs of vessels accumulating. During the time between 28 August and 4 September, the highest number of vessels queuing for transit was 130 ships on 29 August, most of which were Panamax vessels.

A comparison between the types of vessels waiting to transit reveals that the majority are Panamax vessels (over 85%). It goes without saying that ships arriving at the canal without a previous booking tend to wait longer. The average number of ships (without booked slots) that spend more than seven days in queue is 5.4 ships, according to the canal's data.

Kuehne+Nagel’s expert opinion and future outlook

The situation at the canal is not ideal, but it is also not yet a crisis. If the drought conditions worsen, there are routes to divert the canal, but they take longer and could cause a rise in operational costs.

It is correct that the canal might consider extending the draft restriction, but only if the months of September and October don’t provide the expected water levels. Historically, these are the rainiest months of the year, but the climate change phenomena we have seen globally this year keep other scenarios on the table.