Panama Canal Drought Sparks Maritime Industry Shift

Water-Level Decline Forces Vessel Limits, Alters Trade Routes, and Boosts Atlantic Basin Rates


In late 2023, the Panama Canal experienced a decline in water levels, attributed to the effects of El Niño. During this period, Lake Gatun’s levels dropped due to rising temperatures that accelerated evaporation. Unlike the Suez Canal, which is a sea-level canal, the Panama Canal relies on freshwater, making it susceptible to drought, as outlined in a BRS Dry Bulk report aimed at assessing the impact on bulk shipping.

The report specifies that the Panama Canal Authority restricted transits to 24 vessels per day during the dry season, a significant reduction from the previous allowance of 36. These limitations mark the most stringent operating conditions in the region since 1989 when passage was completely halted during the U.S. invasion of Panama.

To emphasize the severity, the Panama Canal Authority recently reported a monthly toll revenue reduction of approximately $100 million since October 2023. It emphasized that if the trend persists, toll revenue reduction could amount to around $700 million by April 2024.

Given daily auction spaces exceeding $1 million, bulk carriers, typically transporting lower-value goods compared to consumer goods and LNG, now have an immediate alternative to navigate through the Suez Canal instead of waiting (without considering the disruption in that route due to the crisis in the Red Sea).

As expected, the United States is the primary exporting country utilizing the Panama Canal for grain shipments from the U.S. Gulf Coast (USGC). Therefore, according to the report, it is imperative to examine the shift in trading patterns for cargo from the USGC to determine the impact of the drought on bulk shipping through the interoceanic route.

According to BRS Dry Bulk, the impact of the diversion was evident in the third and fourth quarters of 2023, which coincide with the U.S. grain export season. During this period, USGC cargoes transiting the Panama Canal coincided with an increased transit through the Suez Canal. It’s worth noting that a route from the USGC to the Far East represents an increase from around 10,000 nautical miles (via Panama) to nearly 14,000 nautical miles (via Suez), a jump of almost 40%.

The report adds that gear carriers, from Minibulkers to Ultramax, have been most affected by the disruption in the Panama Canal, representing 80 to 90% of total bulk carrier transits through that route.

Therefore, the report indicates, “it is not surprising that during the USGC grain season, gear carrier rates in the Atlantic Basin (routes S4A_5B and HS4_38, etc.) strengthened from October 2023, surpassing their Pacific counterparts (S10 and HS5_38, etc.). In fact, premiums on Transatlantic routes reached $25,000/day vs. Transpacific routes that reached $15,000/day in mid-December.

The strength of the Atlantic Basin alone elevated average rates on routes S1OTC and HS7TC to over $15,000/day in December, respectively. The last time such figures were recorded was in 2021, when gear carriers enjoyed an unexpected tailwind thanks to the container ship boom. This underscores how potent restrictions on the Panama Canal could be as a lever for maritime transport, while cargo diversion might simply be considered collateral damage.

On the other hand, the decline in Kamsarmax (-161) and Panamax (-36) loaded transits was attributed to the decrease in U.S. grain shipments to the Far East, as China favored more competitive Brazilian grains amid challenges in the U.S. agricultural sector with the Mississippi River.


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