The staff of the Panama Canal Authority recently indicated that water-saving measures will be implemented for at least the next 10 months. Faced with this year’s severe drought and the El Niño weather phenomenon, the Panama Canal management has restricted the draft of vessels passing through the new Panamax locks by 2 meters. Meanwhile, the number of daily transiting vessels has been reduced by 20%, down to 32 vessels per day. Due to the lack of prior preparation, many ships have been stranded at both sides of the canal. As of the 25th, there were 129 stranded vessels.
According to further understanding, these restrictions on canal transits will last for at least 10 months. In other words, it may not be until the second half of next year that the canal’s operations gradually recover. After the introduction of these new limitations, many container ships have had to unload containers near the canal entrance and switch to other modes of transportation. Containers can continue their transit journey through rail or truck transport. For sellers with shipments scheduled for this month, the impact is certainly significant. Container ships either have to join the queue or switch to overland transportation. With global inventory decreasing and demand gradually recovering in the second half of the year, the volume of ship transits is expected to be higher than the first half of the year. This puts even greater pressure on the canal. For shippers, if they haven’t arranged their shipment plans properly, the Halloween and Christmas shopping seasons in the second half of the year could be affected. The impact on container ships, relatively speaking, is manageable. With advance planning, reservations and queuing can be done as per the schedule.
With the draft restrictions reduced by two meters, it means that larger vessels might have to take alternative routes. For ships with a capacity of more than 12,000 TEUs, they might need to consider alternative routes. For instance, the Suez Canal could be a favorable option. This also forces some container ships to change routes and take the Suez Canal, which could lead to longer voyage times. In this way, other routes can alleviate the demand on the Panama Canal and distribute the shipping capacity. However, even in the event of potential cost increases associated with transiting the canal, the shipping rates for this month haven’t suddenly surged. In other words, the market hasn’t experienced significant fluctuations due to this.
This situation could change at any time. If this situation persists for a while, the likelihood of freight rate increases will grow. Many may choose to unload containers at West Coast ports and transport them overland to their destinations, which would increase the shipping volume to the West Coast. Consequently, this would lead to a rise in shipping rates to the West Coast. Originally, the shipping volume in the third and fourth quarters was expected to increase. Coupled with the restrictions in the Panama Canal, the chances of price hikes for the remaining four months to the West Coast are quite high. In September, big sellers should gradually follow their plans for shipments to cope with the upcoming holiday promotions. Sellers needing to ship in the second half of the year should act promptly, strategically planning their shipment schedules to avoid shipping at the peak of freight rates.
