Container ships, LNG tankers feel El Niño impacts at Panama Canal

View Full Transcript

El Niño is increasingly moving beyond a weather event and becoming a key factor for freight markets. 

Drought and below-normal rainfall have reduced water availability at the Panama Canal. 

In response, the Panama Canal Authority has implemented draft restrictions and cut the number of daily transit slots from 36 to 34.

On the container side, carriers are preparing for reduced vessel drafts, which limits cargo loading and effective capacity. 

The pressure is most visible on the North Asia to East Coast North America trade. 

It’s become even more expensive to ship to the East Coast than the West. 

The spread between the two lanes has nearly tripled, with East Coast rates rising even as overall spot rates fall. 

On the LNG freight side, traffic through the Canal was increasing before the restrictions went into place, with eastbound traffic hitting a more-than-two-year high in June.  

For LNG shippers, the alternative is a longer voyage, which means higher costs and more bunkers to burn. 

Sailing from the US Gulf Coast to North Asia via the Panama Canal takes about 30 days, and going the long way around the Cape of Good Hope can take 50 days. 

Panama’s rainy season lasts until about November, and with rainfall already below average and alternative routes impacted by military activity and high costs, shippers face tough decisions in the months ahead.