Panama Canal jam sends ships sailing continents out of the way
The Panama Canal, the century-old engineering marvel that revolutionized global trade, is being squeezed shut by drought and forcing shippers worldwide to face a painful choice.
They can wait in line for days or weeks, as low water levels limit the number of ships passing through the 50mile waterway, carrying cars, consumer goods, fruit and fuel. They can pay millions of dollars to jump ahead in the queue, if a ship with a booked reservation drops out. Or they can sail an entire continent out of the way, sending their ships around the southern tips of Africa and South America, or through the busy Suez Canal.
Each choice adds cost, at a time when governments around the world are struggling to tame inflation. And the bottleneck will only worsen in the coming months as Panama enters its annual dry season, which typically begins in December and lasts until April or May.
“We face less capacity, more trips, higher costs and a less efficient supply chain,” said Paul Snell, chief executive officer of British American Shipping, whose company moves about 20,000 to 40,000 containers per year. “Everyone’s going to have to get creative and decide what they’re going to do.”
Gatun Lake, which forms a key stretch of the canal system and provides fresh water for its locks, saw little rain this year, as El Niño triggered a withering drought. So the Panama Canal Authority has ratcheted back the number of ships allowed to pass, from an average of 36 to 38 per day in the past to an expected 18 in February, half the normal amount. The authority also reduced draft levels — how low a vessel can sit in the water — meaning some ships must carry less cargo. Even if the rains return on time next year, traffic congestion and draft restrictions will linger long into 2024.
Many companies, particularly those moving fuels from the U.S. Gulf Coast to Asia, have been willing to pay extra to ensure their ships get through. The authority holds auctions whenever a ship with a reservation cancels, and slots this year have gone for as much as $4 million. A year ago, the average auction price was around $173,000, according to data from Waypoint Port Services. “It’s just astronomically out of control,” said Francisco Torné, one of the firm’s country managers for Panama.
Money for an auctioned slot comes on top of the canal’s usual transit fee, which depending on the vessel’s size can be close to $1 million. Companies spent $230 million on auctions this year through Nov. 20.
Other shippers opt for detours that can add thousands of miles and more than a week at sea — sometimes through perilous waters. The Pyxis Pioneer, carrying liquefied petroleum gas, in November steered through the windwhipped Strait of Magellan near South America’s southernmost point, followed by a Chilean load of gasoline products headed to New York and an oil tanker from southern Mexico bound for the U.S. Gulf. Ships from the Gulf Coast or eastern U.S. that may have sailed to Asia via the canal now head in the opposite direction, rerouting around South Africa’s Cape of Good Hope or through Egypt’s Suez Canal.
Each route adds 10 days to three weeks to the trip, depending on how fast the vessel sails. According to Avance Gas Holding Ltd., about 50 very large gas carriers are now on return voyages to the U.S. via the Suez Canal or the Cape of Good Hope, up from 10 vessels in July.