Persian Gulf-Japan VLGC rate near 16-month high on India port congestion, Panama Canal woes

Persian Gulf-Japan VLGC freight rates climbed to a near 16-month peak as a confluence of operational bottlenecks across key shipping routes threatens to push costs even higher, said shipping sources.

The prevailing uptrend in the PG-Japan rates has been attributed to longer-than-normal delays in discharging LPG cargoes at Indian ports, the strength in the Houston-Japan VLGC freight brought about by widening arbitrage economics and the congestion at the Panama Canal northbound, which has resulted in higher costs at the canal's auctions.

A shipbroker based in Singapore, who called it "a perfect storm" in the week ended Aug. 8, said the same factors continued to drive rates higher this week.

"Yes, still the same factors, that is, India delays, strong US Gulf freight market with owners pushing up numbers with arb widening, owner-dominated position lists, Panama Canal northbound congestion/high cost of auctions," he said Aug. 14.

A shipping source based in India said that the longer-than-normal waiting times to discharge cargoes at various Indian ports have not abated since last week. Market sources based in India said that congestion at the country's ports during the monsoon season, which typically starts in June and ends in September, is normal, especially ahead of major festivals like Diwali in October.

As of Aug. 14, VLGCs have to wait for as long as 8-10 days before discharging cargoes at Ennore, Haldia and Paradip in East Coast India. The situation was slightly better at West Coast India ports, where the longest wait is 7-8 days at Dahej and Mangalore ports, the shipbroker said.

A shipbroker report dated Aug. 13 showed that out of the 14 VLGCs scheduled to discharge at Haldia port, 5-6 ships have already arrived, one ship berthed on Aug. 13 and two more are expected to berth on Aug. 14. In the week prior ended Aug. 8, 12 VLGCs were on the list dated Aug. 7 and four ships were scheduled to depart after discharging their cargoes over Aug. 9-12.

Nevertheless, yet another industry source said that only selected ports were facing substantial delays, especially those where state-owned LPG suppliers were taking delivery of cargoes.

Platts, part of S&P Global Energy, assessed the PG-Japan VLGC freight at $89.60/mt at the Asian close on Aug. 14, up from $89.10/mt on Aug. 13. Platts last assessed the rate higher on May 21, 2024 at $92.50/mt

Panama Canal

A report published Aug. 13 by S&P Global Energy analysts showed that congestion at the Panama Canal also contributed to the climb in VLGC rates.

"According to the Panama Canal Authority, congestion has been rising for Neo Panamax vessels, with average wait times for non-booked LPG carriers increasing from 7.5 days on Aug. 8 to 8.5 days on Aug. 9 and reaching 9.5 days by Aug. 10 -- slowing vessel rotations and reducing the number of ships available for fresh liftings," the report stated.

In an earlier report, analysts said, data from the PCA indicated that the transit backlog for NeoPanamax ships on Aug. 10 had risen, a trend observed since late July. As of Aug. 11, northbound traffic levels were surpassing those of southbound ships.

"The demand for VLGCs is robust, with transit counts via the Panama Canal reaching 129 in July -- the highest monthly total since December of the previous year," the report stated, adding that this reflected an 18% year-over-year increase and growing traffic in this segment.

The increasing waiting times at the Panama Canal are adding to bullish market conditions, suggesting that the upward trajectory in freight rates may continue in the coming weeks.

"I won't be surprised if we see something with a 9 from the Middle East," a shipbroker based in Europe said, referring to the likelihood that the PG-Japan freight could breach the $90/mt mark in the near term.