Blog Archives

Drought in Panama and war around the Red Sea and Suez is a slow-burning but developing crisis for the container shipping industry as both canals become choke points that could see freight rates double.

As the rainy season in Panama comes to an end, and notwithstanding the announcement that rain has raised water levels allowing the Panama Canal Authority to increase the number of daily transits, the outlook for next year remains tight.

Chief analyst at Xenata, Peter Sand, said the dry season could see services for the US East Coast diverted via Suez though with the security situation in the Red Sea deteriorating the industry may face some tough choices regarding the routeing for services.

“Rates could easily double as a consequence,” said Sand, adding, “There are seven weekly services that transit the Panama Canal, if they were all to be re-routed via Suez that would require an extra three ships on each service to maintain the weekly calls.”

He qualified that saying that vessels would have to operate at current speeds, but if they increased speeds by a single knot it could reduce the requirement to two ships, while slowing down could raise the number to four extra ships.

“Shippers had been hoping for a period of lower rates but now with both canals becoming choke points the upshot could see delays to cargo, higher costs and greater uncertainty,” claimed Sand, “I call it a slow-burning disaster”.

With July the next rainy season in Panama there will be a need for the canal reservoirs to be replenished, but if the rains fail to lift the water levels sufficiently in the next rainy season the delays and restrictions could last into 2025, said Sand.

One source also pointed to the fact that the demand on the Panama Canal reservoirs is not only from the maritime sector but the water is supplied to the growing population in the canal region, putting further pressure on the water levels and probably adding to ship delays said a maritime source, who preferred to remain anonymous.

VesselBot, an Athens-based tech company, has analysed the current number of vessels waiting to transit the Panama Canal, with the extra emissions from extended waiting times included.

CEO and founder at VesselBot, Constantine Komodromos, said, “The peak for vessels entering the [Panama Canal] anchorage concluded in October, and there was a bottleneck in November. As shown in graph 1, in October, 404 vessels entered both anchorages and resulted in an average of 32.55 hours waiting at anchorage in November, making it the peak anchorage waiting time through the year.”

Due to the peak of shipping vessels entering the anchorage concluded in October, there is a bottleneck in November. As shown in the graph, in October, 404 vessels entered both anchorages resulting in an average of 32.55 hours waiting at anchorage in November, making it the peak anchorage waiting time through the year. Source: VesselBot

November arrivals had already decreased at the entrances to the canal, explained Komodromos, because of the waiting times, with some vessels re-routing via Cape Horn. However, he added fewer ships are arriving precisely because of the transit delays.

“Vessels when anchored consume fuel for a number of operational reasons, mostly for auxiliary engines. Therefore, the increased waiting time and the higher number of vessels waiting in the anchorage led to the highest emissions produced at anchorages around the Panama Canal,” noted Komodromos.

November saw a spike in emissions to 12,000 tonnes in greenhouse gas emissions, an increase of more than 5,000 tonnes since January of this year, according to Komodromos.

An increase in the emissions from shipping is expected to be seen as both the limitations on the Panama and Suez Canals persist.

SeaRoutes, an emissions tracking tech company, has calculated that vessels transiting the African Cape, rather than heading via Suez will substantially increase fuel consumption and therefore emissions.

In its calculations, SeaRoutes estimates the emissions for a vessel operating from Shanghai to New York via Panama, Suez and the Cape, with the shortest route via Panama and the distance via Suez around 40% longer adding more than half a tonne of CO₂/TEU plus more than 30% to the journey time.

Even with the evidence of higher costs for the carriers diverting traffic to avoid the canal choke points, shippers remained unimpressed with the “price signalling” from Xeneta.

James Hookham, director at the Global Shippers’ Forum, pointed out that there are alternatives to the Panama Canal. “We may well see cargo from Asia to the East Coast returning to the Californian ports and using rail to ship to the Midwest,” he said.

Hookham forecasts that should Houthi missiles target gas and oil tankers the US and European nations will need to act to protect commercial shipping, if only to prevent energy prices from spiralling out of control and forcing inflation up again.

That forecast has now come to fruition with escorts led by US forces likely to start in the near future.

Source: Container News

The Panama Canal is experiencing major, ongoing disruptions in the shipping supply chain due to restrictions on traffic related to very low water levels. This is the result of drought conditions that rapidly developed from the beginning of the year through June and have held steady since that time. In fact, 2023 is off to the driest start during January-July since 2015, which had a similar rainfall rate (see figure below). Furthermore, this represents a departure from a long-term wetter trend as reflected by data from 1981-present.

While the low rainfall rate itself is not historic in nature over the long-term, 2023 does show the largest decline in rainfall rate year over year on the record. This sudden drying after a wet 2022 is the likely culprit for the rapid drop in canal water levels.

There has been a slight improvement in rainfall over the past two months, which has resulted in a stabilization of Panama Cana water levels after months of sharp declines. However, rains have not increased enough to raise water levels or to lessen the drought; rather a worsening scenario was simply avoided.

The forecast through the next two weeks does show a more significant period of high rainfall that could finally start to raise water levels in the canal. Unfortunately, high rainfall is likely to be temporary, as the second half of September is likely to feature widespread dryness once again across Panama. Furthermore, season forecast guidance through the end of the year suggests that dry weather could persist. This means that Panama Canal water levels are likely to remain exceptionally low for months ahead yet despite short-term improvements in the forecast.

Author of the article: Isaac Hankes, Senior Weather Analyst at London Stock Exchange Group

The Panama Canal announced it will maintain a draft of 13.41 metres for the next several months, “as long as weather conditions do not vary significantly from current projections”.

Panama Canal noted that consistent with this draft and along with this temporary condition, an average of 32 vessels per day will be allowed to transit.

“As part of a worldwide phenomenon, in the last six months, the Canal has experienced an extended dry season with high levels of evaporation, with a high probability of an El Niño condition before the end of this calendar year,” pointed out the Canal in a statement.

The Canal added it has been implementing procedures to improve water efficiency in its operations, while conducting studies to identify long-term solutions to climate variability.

Source: Container News

From August 1 to November 30, 2021, the Panama Canal will once again promote the implementation of the International Maritime Organization’s (IMO) speed and navigational recommendations to protect whales, dolphins, and other large aquatic animals, as they start their nearby seasonal migration.

In accordance with the IMO’s recommendations, ships traveling to and from the Canal via the Pacific and Atlantic Ocean during this period must stay within designated navigation areas known as Traffic Separation Schemes (TSS), which decrease the overlap between vessels entering or exiting the Canal and migrating marine life. Vessels traveling through these areas on the Pacific side of the Canal should also proceed at a speed of no more than 10 knots, a practice known as Vessel Speed Reduction (VSR).

Image Credits: pancanal.com

These measures, first implemented and promoted by the Canal in 2014, have significantly reduced the likelihood of interactions and serious incidents involving whales and other cetaceans, while assuring maritime safety and control of vessels transiting the waters surrounding the Canal. Compliance with the TSS measures by the Panama Canal has proven critical, as the Gulf of Panama is an important wintering ground for migrating humpback whales.

“When we talk about sustainability at the Canal, we take into account the protection and wellbeing of our entire ecosystem and biodiversity,” said Panama Canal Administrator Ricaurte Vásquez Morales. “These measures show that a small change can mean a huge difference when our industry works together to prioritize sustainability. We are grateful for our customers who continue to recognize the value of these measures and the Panama Canal’s offerings as a green route for global maritime trade.”

A study commissioned by the Panama Canal also found that the TSS program garnered significant emissions reductions. Analysis of the speed, position and heading data from vessels’ automatic identification systems (AIS) confirmed that compliance with the annual recommendations lowered a vessel’s greenhouse gas (GHG) and pollutant gas emissions by an average of 75 percent. The savings varied by the vessel type, size, and fuel, but resulted in over 20,000 tons of carbon dioxide (CO2) saved in total between 2017 and 2020.

A study commissioned by the Panama Canal also found that the TSS program garnered significant emissions reductions. Analysis of the speed, position and heading data from vessels’ automatic identification systems (AIS) confirmed that compliance with the annual recommendations lowered a vessel’s greenhouse gas (GHG) and pollutant gas emissions by an average of 75 percent. The savings varied by the vessel type, size, and fuel, but resulted in over 20,000 tons of carbon dioxide (CO2) saved in total between 2017 and 2020.

Being an all-water route, Panama Canal recognizes first-hand the impact of rising global temperatures and the importance of protecting our oceans. The waterway is focused on elevating its sustainable operations and value for the global supply chain, and these efforts are just another example of its commitment towards mitigating the effects of climate change, ensuring ocean conservancy and protecting biodiversity.

Reference: pancanal.com