Panama's climate is divided into two seasons: the rainy season and the dry season. The dry season usually starts in November and lasts until April. As a result, the dry season in Panama is really coming, and the already scarce water during the rainy season will further exacerbate and have a profound impact on international shipping.
1/ The Panama Canal Authority issued a notice on October 30 local time, saying that due to the continued lack of precipitation in the canal basin, the precipitation in October hit the lowest record since 1950, the water level of Gatun Lake fell to the lowest level in the same period in history, and the Panama Canal will further reduce the daily transit capacity from the beginning of November, and the number of ships that can be booked to pass through the canal will continue to decrease and will continue until February.
2/ I have consulted the original Panama Canal Authority Circular Statement Advisory To Shipping No. A-48-2023.
To: All shipping agents, ship owners and operators
Topic: Reduction in the number of crossings due to persistent lack of precipitation in the canal basin
- Since the start of the 2023 dry season, the Panama Canal has implemented several water conservation and water conservation measures to ensure smooth transit operations, including the use of water-saving pools at the New Panama Locks and cross-filling at the Panama Locks. In addition, the late arrival of this year's rainy season and the lack of precipitation in the canal basin have forced the canal to reduce the number of daily transit vessels to approximately 32 from 30 July 2023, while managing rainfall in the basin to maintain the water level of Lake Gatun and provide our customers with a competitive draft.
- On September 29, 2023, the Canal announced a further reduction in transit capacity from November 1, 2023. Despite all the measures, the water level in Lake Gatun continued to fall, reaching an unprecedented low for the period. October saw the lowest precipitation since 1950 (below 41%), and 2023 has so far been classified as the second driest year of the same period.
- With rainfall projections for the coming weeks expected to decrease by 38% for the remainder of the year, ACP has found it necessary to further reduce daily transit capacity to postpone the need to reduce the draft to below the current 13.41 m (44 ft) TFW.
-therefore
From November 3, 2023 to November 6, 2023, the number of scheduled sailings will be reduced to 25,
From November 7, 2023 to November 30, 2023, the number of scheduled sailings will be reduced to 24.
From December 1, 2023 to December 31, 2023, the number of scheduled sailings will be further reduced to 22,
From January 1, 2024 to January 31, 2024, the number of scheduled sailings will be reduced to 20,
From February 1, 2024, until further notice, the number of scheduled sailings per day will be reduced to 18.
3/ "TFW" is an abbreviation for "Tropical Fresh Water", which means "tropical fresh water" in Chinese. In shipping, the term is often used to describe a vessel's draft, the maximum depth at which a ship's hull can dive in tropical freshwater. This data is important to ensure that ships can safely pass through canals and other bodies of water.
4/ The number of vessels arranged for the crossing is based on the current and projected water levels at Gatun Lake, which will continue into the next few weeks. Depending on the rainfall in the canal basin and the water level of Gatun Lake, the number of daily crossings will be further adjusted. As noted in previous circulars, the Panama Canal Authority (ACP) strongly recommends that vessels use the transit reservation system in order to guarantee the date of the transit and reduce the possibility of long delays.
5/ It is worth mentioning that, in addition to the normal order of scheduled crossings, the Panama Canal authorities also offer one or two free transit times of the new Panamanian locks each day by auction to the highest bidder. These auctions are usually won by liquefied natural gas (LNG) or liquefied petroleum gas (LPG) vessels. Due to the ongoing drought conditions in the Panama Canal, shipowners and charterers are desperate for their vessels to be able to pass through the canal, which has driven auction prices for transit time to new records. Fearnley Securities reported that a bid for a transit time slot ended with a whopping $2.85 million on Monday. That's a significant increase from the usual booking fee of about $900,000 and surpassing the previous peak of $2.6 million in November. Based on current trends, the highest prices in auctions will continue to refresh historical records.
6/ Most shipping views, the existing restrictions have already led to long delays for certain vessel types, with dozens of vessels waiting to pass through the canal, and with the arrival of the real dry season and further restrictions on draft crossing, will lead to an increase in freight rates for VLGC mega gas carriers/VLCC mega tankers in particular. This will be the icing on the cake for the logic of the upward movement of the VLCC oil cycle.
7/ For container shipping, the Panama Canal restrictions have not yet had a significant impact, but the newly announced reduction in scheduled crossings is likely to send more cargo to the West Coast or through the Suez Canal in the coming months and provide some support for freight rates. Because the draft restrictions in the Panama Canal have reduced the capacity of vessels for all water transportation from Asia to the East Coast, coupled with the imminent risk of a possible breakdown in labor negotiations at the East Coast of the United States. The opportunity for the West of the United States has come! Personally, I expect that the Z family, which has always been sensitive to the market and quick decision-making, will return to the West of the United States soon.
8/ With regard to dry bulk, large ships are expected to try to make their way to the southern part of the Americas, such as the Strait of Magellan, rather than waiting in line around the canal. U.S. exports of corn, wheat and soybeans are expected to increase in the coming months after a good agricultural year.
9/ In addition to natural disasters, there are also the effects of man-made disasters that may escalate. In the past few days, large-scale protests have occurred in Panama, and demonstrations have been held in many places to close roads, seriously affecting the normal order of local production and life. The Chinese Embassy in Panama has also reminded Chinese citizens and institutions in Panama to pay close attention to the development of the situation, increase vigilance, pay attention to safety, strengthen precautions, and reduce non-essential travel.
10/ The backdrop is the escalation of workers, teachers and indigenous groups taking to the streets. They protested the government's approval of a contract to renegotiate the operation of Central America's largest open-pit copper mine with a Canadian mining company. They say it's a threat to the environment and an attack on Panama's sovereignty. Political analysts say the issue has had such an impact because the country has a long history of foreign intervention in the country, especially U.S. control of the Panama Canal, which lasted throughout the 20th century.
Author most shipping - Dennis