Panama Canal caps lock capacity, set to boost dry bulk ton-miles

The Panama Canal Authority will cut the number of daily transit slots through its locks starting Sept. 3, citing below-normal rainfall in the watershed that feeds the waterway, a move that threatens to squeeze shipping capacity just as US Gulf soybean exports to China are expected to pick up seasonally.

In an advisory to shipping, the canal authority said daily slots at the larger Neopanamax Locks will be reduced to nine from Sept. 3, while the smaller Panamax Locks will see slots cut to 25 that day and further reduced to 23 from Sept. 15.

The cuts come despite the arrival of Panama's rainy season and water-saving measures the authority has already implemented to counter the effects of an El Niño weather pattern, the canal authority said.

"Current watershed conditions, including below-expected precipitation in the Canal watershed, require additional action to support the long-term sustainability of transit operations," the authority said in the advisory.

Auction shake-up

Alongside the capacity cuts, the canal authority will reorganize its daily auction system for Neopanamax, Supers and Regular vessel slots into four groups from Sept. 3, it said.

Group 1 will cover LNG and LPG carriers; Group 2 will include dry bulk carriers, general cargo and other vessels; Group 3 will cover container vessels, vehicle carriers/RoRo and refrigerated ships; and Group 4 will comprise chemical tankers and crude/product tankers.

The canal authority said the restructuring aims to promote "a more equitable allocation process that better reflects market composition, including various cargo types and market segment characteristics."

Customers that have already secured a booking slot for the same transit date through the canal's Long-Term-Slot-Allocation (LoTSA) or NetZero programs, or through prior allocations, will not be eligible for an additional auction slot unless no other bidders exist, according to the advisory. Customer limits will not apply to slots won through the auction process, and full container vessels with the highest TEU capacity will be prioritized in the Neopanamax Locks, with customer ranking used as a tiebreaker.

The authority warned that the reduction in daily transits "may increase waiting times for vessels arriving at the waterway without a secured reservation" and urged shippers to use its Transit Reservation Booking System, saying a confirmed reservation "is the only mechanism that guarantees a transit date."

Under Notice to Shipping N-07, the authority may temporarily suspend all or part of the booking system when necessary, though any resulting cancellation would carry no penalty, surcharge or fee, it said.

Ton-mile boost

The reduced transit capacity is expected to support ton-mile demand for dry bulk shipping at a time when US Gulf soybean exports to China are expected to start seasonally rising, according to a Greece-based analyst.

"This is very straightforward bullish news for the market, as it will support ton-miles at a time when the US Gulf soybean seasonality will be in full swing and China is buying US soybeans," the analyst said, adding that "this should especially benefit the Panamax/Kamsarmax market."

Vessels rerouting away from the Panama Canal face substantially longer voyages. Sailing from New Orleans to Qingdao via the Suez Canal could make the distance 40% longer than the Panama Canal route, according to the analyst.

Platts, part of S&P Global Energy, last assessed the Panamax dry bulk freight rate on the US Gulf-to-China grain route at $62.50/mt on Aug. 21, down 25 cents from $62.75/mt on Aug. 20.

A Greece-based shipbroker said congestion at the canal has already intensified booking competition. "Well, the situation is tough there. Last week, we heard a slot was sold for $4 million, so there is need and there is traffic. We expect that things will get even more tight and then deflate by mid-September," the shipbroker said.

The shipbroker said some bulk carriers are already taking longer routes around South America to avoid the bottleneck, adding: "Many vessels are doing the Magellan trip (at least bulkers) adding miles... yet it is unknown if the end consumer pays this or who absorbs this cost."

The canal authority said it will continue monitoring weather conditions, watershed inflows and lake levels, and will provide updates should further operational adjustments become necessary.

"Because weather conditions are changing more rapidly than originally anticipated, the Panama Canal will make every reasonable effort to announce any future adjustments as far in advance as possible," the authority said, adding that the timing of any announcements would depend on evolving conditions.