Panama Canal expansion faces climate change challenges
When the expanded Panama Canal opened for commercial operations in 2016, the prospects for easier access between Asia and the U.S. East Coast looked set to provide a major boost to east-west trade. Initial trial runs using the 13,100 TEU capacity Maersk Edinburgh proved successful and a combination of vessel design enhancements and adjustments to permitted vessel beam and draft have gradually allowed the benchmark to be tweaked upwards.
Unfortunately, drought conditions have disrupted operations this year as the influence of the El Niño weather pattern has made Panama and the surrounding region both warmer and drier. Last month, in order to save water the Panama Canal Authority (ACP) introduced a reduction in the number of daily transits to approximately 32, irrespective of reservations. The plan entails 10 transits through the new and larger NeoPanamax locks with the remainder using the old locks. The previously decreed reduced maximum transit draft of 44 feet is also projected to stay in place until some time in 2024. As a consequence, several container ships have had no choice but to lighten ship in Balboa and transship containers across the isthmus by rail.
This was highlighted in August when Evergreen Corporation’s brand new Ever Max (nominal capacity 17,300 TEU) arrived at Balboa with 14,745 TEU, a new record. Due to the latest draft restrictions, she was forced to lighten by 1,400 TEU and reload her boxes in the port of Colon on the Atlantic side of the Canal. Fortunately, container handling capacity on both sides of the Canal is more than adequate to meet the new demands but advocates for Canal expansion will be disappointed that the investment in infrastructure to handle up to 40 ships a day is not currently being realized.
Around 3% of world trade by volume, including U.S. LNG exports and South American fruit exports transit the Canal which also provides major income for Panama, Central America’s richest country per head of population. Around 30% of container trade crossing the Pacific also relies on the Canal.
The reduction in the allowable number of daily transits has generated major back ups with as many around 160 vessels delayed at the peak. The Canal operates a system of pre-booking, slot bidding or turn up and wait. Following a reduction in the number of pre-booking slots available, there are few, if any, pre-bookings to be had and the cost of slot bidding is off the scale. One vessel recently paid $2.4 million in addition to a standard transit fee of around $400,000 to get a slot.
LNG carrier in transit through the new Panama Canal locks – courtesy ACP
Waiting time averaged 9 days for transit in August compared to around 6 days in July, according to Canal Authority data. Waiting time was longer for general cargo vessels, bulk carriers and LNG carriers whereas container ships, cruise ships, refrigerated cargo vessels and vehicle carriers were less impacted.
In response, shipping is doing what it always does in the event of closure or restrictions to a major waterway which is to find an alternative route. Container ships trading to the U.S. from Asia are favouring west coast ports and LNG carriers (which are not impacted by the allowable draft reductions) trading from the U.S. Gulf to Asia are taking the long haul via the Suez Canal, the Cape of Good Hope or the Strait of Magellan. The problem with the latter is the number of available Chilean pilots given that they need to spend several days on the vessel.
Hopefully the current setbacks will be naturally resolved over time. Whatever the case, Panama has done a good job in managing the Canal since President Jimmy Carter agreed in 1977 to hand operating rights over beginning January 1, 2000.
Feature Image Courtesy: ACP