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Panama Canal levels look to stay low

The summer months usually represent the peak of the wet season in Panama, with abundant rainfall across the region normally increasing water levels in the freshwater lakes of Lake Gatun and Lake Alajuela that feed the Panama Canal. However, the ongoing drought that began impacting Panama in February has worsened, resulting in below-average rainfall and higher-than-normal temperatures over the summer.

The lack of rainfall over the past two months has forced the Panama Canal Authority (PCA) to implement further restrictions on vessel traffic. These restrictions have caused a backlog of around 100 vessels at the canal, with waiting times of up to 19 days being reported for some vessel types.

Drought conditions continue

Since July 1, rainfall in Panama has been below normal which contrasts with the past three years that featured above average precipitation totals. Rainfall levels during the previous eight-weeks have been the sixth lowest since 2000 with drought conditions over the course of 2023 ranking as Panama’s most severe since the turn of the century.

The lack of rain coupled with above-normal temperatures has led to continued water level drops in the two major freshwater lakes that feed the Panama Canal. In Lake Gatun, the larger of the two, water levels reached a seven-year low at the end of July and are forecasted to remain below five-year average totals through October. The current drought is drier than previous dry weather events in 2015 and 2019 which has forced the PCA to adopt traffic restriction measures.

Traffic control measures cause congestion

The PCA has limited the daily number of vessels allowed to pass through the canal. Starting from July 30, daily vessel transits have been capped at 32 vessels instead of 36. Out of these 32 slots, 10 are reserved strictly for Neo-Panamax vessels while the remainder will be given to Panamax vessels.

Lowering the daily transit limit has resulted in a logjam of ships queuing to transit the canal. Congestion levels reached their peak on August 18 with more than 140 vessels. Vessels queuing for transit are mostly comprised of ships without a booking slot or preferential customer status.

The PCA has implemented booking condition 3, which allows more vessels without a prior booking slot to pass through the canal. In total, 18 slots have been reserved for un-booked vessels from August 8, with a further two slots given to un-booked vessels awaiting passage at anchor off the canal from August 21. Priority for these slots has been given to full container vessels.

Most of the queuing vessels are tankers, freighters, bulk-carriers, and coal-loaded vessels undertaking last-minute transits. Everstream Analytics’ data shows that the number of vessels waiting for more than five days has dramatically increased since June 2023 to more than 35 in the current month.

Shippers consider alternatives due to ongoing restrictions

Due to growing congestion, shippers are finding alternative methods to bypass the delays and fees at the canal altogether. Moving shipments via the Suez Canal or around the Cape of Good Hope remain viable alternatives for shipping cargo between Asia and North America.

Shippers seeking alternate Asia-North America routes could also turn to West Coast ports in Canada and the United States. Cargo at these ports could be shipped to and from the East Coast through existing road and rail links. Congestion at West Coast ports has improved following the resolution of long-standing labor disputes between the International Longshore Warehouse Union (ILWU) and maritime employers’ associations over the summer. Congestion at West Coast ports continues to remain far below monthly averages.

Alternately, shippers have also begun asking vessels to unload and load cargo at either end of the Panama Canal as a way of complying with existing draft restrictions. Vessels are docking at the Ports of Balboa or Manzanillo at their full maximum capacity before being unloaded to meet the minimum draft restriction requirements. The cargo is then transported by rail to another port situated on the opposite end of the canal before being reloaded onto the same or different vessel.

The practice of offloading and reloading cargo at different ends of the canal appears to be causing increased congestion at Panamanian ports, with port congestion levels reportedly increasing by 40 percent since mid-July.

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