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06 Nov

Panama Canal Announces Bigger Slowdown

Panama Canal Announces Bigger Slowdown

The Panama Canal Authority (ACP) announced new restrictions this week.

Just 18 vessels a day will be allowed to sail through the 50-mile waterway in February 2024. That’s because water levels at the reservoir feeding the canal continue to decline amid a months-long drought.

Effective Wednesday, the ACP will allow one fewer ship to traverse the canal. This means the daily maximum transit capacity will be 31 vessels instead of 32. For vessels looking to book ahead of time, transit reservation quotas will be adjusted from 32 to 30 per day.

On Friday, the number of booking slots will drop to 25.

Under normal conditions, the canal usually accommodates 34 to 36 vessels daily.

Capacity will tighten up again on Nov. 7, when booking slots fall to 24 vessels per day. This will last for the rest of the month until the maximum allotment falls to 22 per day in December.

Additional restrictions take effect next year. Starting Jan. 1, daily booking slots will fall to 20, before dropping to 18 per day until further notice.

The authority is spacing out the restrictions now that the August-to-October peak shipping season is over. The good news for container ships is that they still get booking priority over other carriers, including dry bulk carriers and liquefied petroleum gas (LPG) carriers. This means retail cargo is less likely to experience multi-day slowdowns, especially if a shipper reserves a spot more than 30 days in advance.

However, the agency encourages vessels to make a reservation to guarantee a transit date and reduce the possibility of extensive delays.

Jon Davis, chief meteorologist at Everstream Analytics, said the tighter restrictions mean there’s no easy answer for shippers unable to book a slot.

“There are some alternatives. But those alternatives, like going around the tip of South America, can have major risks and are expensive if they even can be done,” Davis said. “There’s nothing easy out there where you can just flip it to ‘Possibility B’ to solve your problems.”

Because the climate conditions won’t change overnight, Davis advised shippers to focus on preparing for the stricter restrictions next year.

“There’s no sign of a short-term improvement, and there’s no sign of an improvement in the long term,” Davis said.

As of Tuesday afternoon, 96 vessels were queued at the Panama Canal, including 41 that booked a transit reservation and 54 without an appointment.

Ahead of the new restrictions, wait times for non-booked vessels are down from peaks in August. Northbound wait times for non-booked average 2.7 days across the four weeks prior to Tuesday, while southbound totaled 2.8 days on average. In late August, idle times ran as high as 11.3 days and 9.7 days, respectively.

Boris Moreno Vásquez, vice president for operations at the Panama Canal Authority, announced the restrictions in an advisory to shippers.

“The recorded precipitation for October has been the lowest on record since 1950 (41 percent below), and so far, 2023 ranks as the second driest year for the same period,” Vásquez said. “Based on the rainfall projections for the following weeks, which as of [Monday] is expected to be 38 percent less for the rest of the year, the ACP finds it necessary to further reduce the daily transit capacity to postpone the need for additional draft reductions below the current 44-feet tropical fresh water loadline.”

Ships can’t exceed a depth of 44 feet due to the unusually low water levels, meaning container ships must ditch some cargo to meet the requirements.

The rainfall-fed Lake Gatun, which provides the water necessary to float vessels through the Panama Canal’s lock system, saw water levels reach 79.7 feet deep as of Tuesday, significantly below the five-year average of 86 feet.

This is concerning because November kicks off Panama’s traditional dry season and the rain-poor season continues through May 2024. The ACP already has prepared for a lengthier drought, saying in late August it would extend any draft restrictions through next summer.

The canal may suffer the largest impact from the restrictions. The ACP said the drought could erase approximately $200 million in revenue from the Panama Canal in 2024.

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