Navigating New Routes: Panama Canal Adapts with Shipping Locks Diversion Plans
The global seaborne trading map is undergoing a significant shift as shippers and shipowners reconsider alternative routes due to the reduced capacity of the Panama Canal. This critical waterway, accounting for 3% of global maritime trade, has implemented measures to cut daily transits in half as a preventive measure against drought.
Analysis conducted by Splash, Sea, Oceanbolt, and VesselsValue reveals a notable increase in vessel diversions, leading to extended voyages. Sea data indicates a rise in tonne days for global voyages across most sectors since the Panama Canal Authority initiated the reduction in daily transits and draft limits on larger locks.
Divergence in routes is evident, with container ships choosing paths via the Cape of Good Hope and the Suez Canal, attracting more tonnage than usual. In contrast, the Magellan Strait experienced a surge of over 30 additional ships compared to the same period last year.
The composition of vessels passing through the Panama Canal has also undergone a change, with a considerable decrease in bulkers and tankers year-on-year. Trade analyst manager Charlotte Cook notes an increase in average hauls on the dry bulk US Gulf to China route and for LNG and LPG trades on the same route. This shift became noticeable in July when the transit cuts were first implemented, leading to more ships opting for the Suez route.
There is a real possibility that large tankers may cease transiting the Panama Canal from the start of the next year, with VLGCs also likely to be pushed out.
The Panama Canal will reduce the number of transits to just 18 in the coming three months, with slots for the newer neopanamax locks decreasing to eight per day. Container vessels are expected to occupy most of these slots, with large oil tankers unable to schedule in advance.
The reduction in slots is anticipated to redirect tramp vessels, including tankers and dry cargo ships, away from the Canal, potentially leading to increased ton-mile demand and changes in segment utilization.
Clarksons Research forecasts that from early next year, no VLGCs may transit through the new locks, with ships likely to opt for routes around the Cape of Good Hope or via the Suez, resulting in additional tonne-miles.
This situation has influenced rates in both futures and spot markets, with a decline in spot market liquidity as stakeholders evaluate the evolving circumstances, as noted in a gas ship market update by Clarksons.
Navigator Gas discussed the issue in an earnings call, and for the dry bulk sector, there is a growing consensus that larger ships will explore alternate routes instead of waiting at the canal. Xclusiv Shipbrokers suggests that despite restrictions at the Panama Canal, the market may find alternatives, such as larger ships circumnavigating the Cape Horn into the Pacific, adding tonne-miles and supporting increased demand for larger vessels.
Restrictions at the canal have already prompted a significant shift in the dry bulk sector, with the Suez Canal’s share of US Gulf to Asia shipments increasing to 83% in October, compared to 23% a year ago, according to S&P Global analysis.