Global Courant
The Panama Canal Authority (PCA) is informing customers that their latest conservation efforts to conserve water will include reducing the number of daily crossings, primarily in the Panamax locks, to 32 to 30 crossings per day compared to the usual 36 to 34 crossings per day. learned.
The Panamax locks lose more water compared to the Neo-Panamax lock. The Neo-Panamax locks have a water recovery system that can recover 60% of the water used during a ship’s passage through the locks. According to the PCA, it takes about 50 million gallons of fresh water to get a ship through one of the locks. The Panamax locks do not have the water collection capacity of the Neo-Panamax locks.
This reduction in ship passages allows the PCA to conserve enough water to offset water depth restrictions that would affect the amount of cargo a ship can carry. The restrictions were expected to take effect on Sunday, June 25, which would mean a cargo drop of about 40% on some container ships.
Even with restrictions no longer in place, current ships crossing the channel or currently underway are currently 40% lighter in load as they were loaded weeks ago in Asia to meet restriction requirements. PCA officials tell CNBC that if they make an announcement about water depth restrictions, it would be no later than 21 days prior to enforcement, given the length of a ship’s loading and length of voyage. The water levels are constantly monitored to ensure fluidity and communication with customers.
While the restrictions are not yet in place, the drop in cargo capacity will make it more expensive for shippers to ship containerized goods, affecting many key sectors of the US economy, from agriculture to energy and retail. The Panama Canal is the main trading port used by U.S. shippers for the Gulf and East Coast ports, due to much-needed rain.
Forty percent of all U.S. container traffic each year passes through the Panama Canal, which carries a total of about $270 billion worth of cargo annually.
“The U.S. is the main source and destination of our traffic,” said Ricaurte Vásquez Morales, Panama Canal Administrator. “If you combine all the goods and containers to the US, this represents about 73% of our traffic. We are constantly communicating with our customers and freight owners to make sure they know where we stand,” he said. .
The Panama Canal is popular for East Coast trading because it is faster than other options. The shipping time for ocean freight from Shenzhen, China, to Miami, Florida, via the Suez Canal, is 41 days. Traveling through the Panama Canal, which is more expensive, takes only 35 days.
But U.S. shippers and industry analysts are concerned about additional freshwater surcharges being imposed because of the drop in water levels. Rates have already gone up. In 2020, the channel imposed a flat fee of $10,000 per transit, along with a toll on a percentage of the ship’s carrying capacity. That toll can be a minimum of one percent to a maximum of 10 percent.
The Gatun Locks of the Panama Canal.
Images Press | Archival Photos | Getty Images
The waterway is one of the fastest and cheapest ways to transport grain and other agricultural products leaving the port of New Orleans for China. The Agriculture Transportation Coalition, which represents U.S. agricultural exporters, told CNBC that light loading will increase transportation costs for all loads, including U.S. agricultural shipments both east and west.
The US is the largest country that transports energy commodities, including natural gas, through the Panama Canal. Just over a quarter (26%) of canal throughput is LPG tankers, ocean-going vessels carrying liquefied petroleum gas, liquefied natural gas, compressed natural gas and liquefied chemical gases in bulk. LNG ships will not be affected by the latest requirements, but channel congestion caused by the lower water levels and the increase in small ships using the channel has led LNG Allies, the US industry trade group, to publicly comment that it is concerned about future congestion and rising costs, and the need for alternative trade routes that would add time to travel.
Vásquez said that even before the water restrictions, there was a shift to using smaller vessels by US shippers due to congestion in larger US ports as more chose to direct the smaller vessels to secondary ports, including Mobile, Alabama, which serves the smaller ships can handle. ships and were close to distribution centers.
But he indicated that Panama Canal management is concerned about the impact of rising fees and shippers and industry seeking alternative trade routes.
“We are going to make a presentation to our board of directors this month,” he said, adding that an action plan is being developed. “In all the considerations we have, I think it’s likely we’ll give our customers a break,” Vásquez said. “I think we need to give the industry a break to make sure we remain a viable route in the long run.”
View of stranded boats at Alhajuela Lake during the summer drought, in Colon Province, 50 km north of Panama City, Panama, on April 21, 2023. Alhajuela Lake is one of the main lakes that supplies water to the locks of the Panama Canal and is at its lowest level in recent years.
Luis Acosta | Afp | Getty Images
In 2021, the world saw firsthand what a channel disruption can do to the supply chain when the Ever Given became stuck in the Suez Canal for six days, blocking a whopping $400 million an hour in trade.
The Panama Canal Authority’s strategy to address similar situations was an announcement in February of a canal disturbance fee ranging from $15,000 to $250,000 for vessels that become stuck and impede vessel flow through the waterway. But the drought problem and low water levels add to the challenges.
The canal has been battling drought for years, but the drought has worsened and there are now growing fears of water levels falling too low and the steps the canal board will need to consider.
“The first water allowance was for a different reason, but now it’s so severe (drought) that we may have to rethink that alternative as well,” Vásquez said. “So this is probably something that we’re going to discuss to get it to go into effect for next fiscal year, starting Oct. 1.”
At least four ocean carriers imposed container fees of between $300 and $500 per box effective June 1 in response to the channel’s measures. More carriers are likely to follow as restrictions grow.
Due to weight restrictions and the size of vessels allowed to traverse the canal, shippers must use more containers and more vessels, and vessel waiting times are expected to increase and become more expensive. Logistics managers tell CNBC that using additional containers incurs an additional $1,500 in shipping costs.
“Lower water levels in the Panama Canal system continue to affect pricing for cargo moving from Asia to the USEC,” said Alan Baer, CEO of OL USA. He said some surcharges have decreased, but the weight restrictions imposed by some carriers still exist and these issues will not go away. “Certainly, the long-term issue of how environmental change connects to global supply chains will need to be analysed,” he said.
Logistics costs have primarily contributed to inflation in recent years and have been noted by Federal Reserve Chairman Jerome Powell as an inflationary pressure that central banks cannot control.
“Panama Canal surcharges and shipping restrictions are likely to lead to higher clothing and footwear prices for American consumers this holiday season,” said Stephen Lamar, President and CEO of the American Apparel & Footwear Association. “Now is not the time to put even more pressure on supply chains, which are still under the ongoing logistical pressure.”
Vásquez, an economist and former CEO of GE Central American and Caribbean, is attuned to both short-term challenges and long-term factors. “We believe that climate change will bring a significant increase in costs and transportation costs,” said Vásquez. “Resources will be allocated differently because there is a movement of nearshoring and production closer to consumer markets.”
In September 2020, the Panama Canal Authority announced it would invite bidders to submit projects to design and build a new water management system. The plans remain under cost and design review by the PCA and the US Army Corp of Engineers. The PCA has budgeted $2 billion for the project, with 250 potential bidders expressing interest. In June 2021, the channel authority said it would come up with a more detailed concept. Work on a new water management system has not yet begun.
