Low water levels have led local authorities to restrict travel through the Panama Canal, forcing ships to reduce drafts since late May and causing a backup of vessels waiting to transit the waterway, Bloomberg reported.
The canal is one of the world’s most important trade arteries, providing a shortcut between the Atlantic and Pacific oceans. Heat and drought have caused water levels to fall to a seven-year low at Lake Gatun, the largest of two lakes that supply water to the canal. Panama’s rainy season extends from May to December, but the canal region is enduring one of its driest years on record.
Vessels have been waiting almost four days on average, with some reportedly delayed as much as 20 days, when typical travel through the site takes little more than a day, according to Clarkson Research Service, a unit of the world’s largest shipbroker. More than 120 ships were waiting to enter the canal this week, up from 90 normally, and as many as 160 ships were in the queue earlier this month, the Washington Post reported.
The Panama Canal Authority has cut the depth limit for large vessels from 50 feet to 43.5 feet and has reduced the number of booking slots for the biggest ships, Bloomberg reported. The restrictions mean that fewer tons are transiting the canal, which moves more than a half billion tons of cargo annually and serves as a vital route for Latin American commodities, including crops and fertilizer.
“There is very little slack, if anything at all, in terms of transiting more ships than right now,” said Peter Sand, Chief Analyst at Xeneta, which analyzes ocean and air freight markets. This has forced some shippers to seek alternate routes, Sand told Bloomberg, including the use of inland railways to offload goods shipped by container to the US West Coast, and to transfer them across the country.
About 40% of containers shipped from Asia to Europe also pass through the canal, according to Container xChange, a container logistics platform. This means the impact of sharply curtailed traffic through the canal could reach far beyond North America, Container xChange CEO and Co-Founder Christian Roeloffs told Bloomberg.
There isn’t much rerouting of dry-bulk cargoes yet, but that could become more of an issue if the dryness persists beyond September, when US corn and soybean exports pick up after harvest, said Bilal Muftuoglu, Director of Dry-Bulk Research at shipbroker Howe Robinson Partners. Given the congestion at the canal, fewer shipowners are willing to charter for the US Gulf to East Asia route, he said.
The Panama Canal restrictions have also pushed Atlantic freight rates higher for ships hauling refined fuel like gasoline and diesel, as well as liquefied petroleum gas, in part because container ships are being prioritized over other types of vessel when passing through the canal, Bloomberg reported.
With Panama’s rainy season ending in December and a developing and powerful El Niño underway, shippers are already preparing for further restrictions next spring.