Date: Monday, August 28th, 2023
The Panama Canal has returned into focus in recent months, and it is perhaps time to set the record straight on several fronts.
The old Panama Canal consists of the man-made lakes of Miraflores and Gatun, and a three-lock, two-lane system – the panamax locks – that would raise and lower vessels 26 m, enabling the 80 -km transit in eight to 10 hours, for vessels with up to a 12.5 m draft. The new Panama Canal is part of the same system but has a two-lock, single-lane system – the neopanamax locks – for vessels up to a 15.2 m draft. The dual system is run on fresh water, with only the new system able to reuse some of the water used to transit the vessels.
The current Panama Canal restrictions are two-fold. In the panamax locks, it is expected that transits will be reduced to 22 per day and only 14 (from 23) can be pre-booked. The Panama Canal handled in the first ten months of its current fiscal year a total of 7,632 vessels in the panamax locks, or a bit over 25 per day. This means three smaller vessels per day, on average, cannot transit. In the neopanamax locks, the restriction is 10 bookings per day versus fiscal year data showing 3,019 transits, or a bit less than 10 per day. Thus, shy of service upgrades, there should be no impact on number of transits, but maximum vessel draft has been reduced from a design of 15.2 m to 13.41 m – a drop of 1.79 m which dramatically reduces cargo intake on neopanamax vessels. The container segment specifically accounts for 11.5% of panamax and 47.8% of neopanamax transits, and the container segment has priority which likely means the vessels that will go elsewhere are dry bulk (coal and grain) that will seek alternate routes.
The restrictions are expected to remain in place for at least 10 months. Why? 10 months will bring us beyond the upcoming dry season, and into next wet season. There are no guarantees restrictions may not remain in place longer.
There have been various reports of vessels waiting to transit, some coming from a single count of vessels in Panama waters, but Panama is also a convenient place for parking vessels between deployments. Factually, on August 26 at 8:21am local time, there were 124 vessels waiting for transit – 20 neopanamax and 104 panamax.
The issue at hand is of course lack of water. The fresh water is provided by the 2,982 sq km Panama Canal Water Shed, noting not all the water usage is for the Panama Canal. In fiscal year 2022, 22.5% went on hydro power, and another 9% to potable water. Vessel transits accounted for 57.9% of the 6,079 hm3 (= 6,079,000,000 cu m) of total water usage.
The Panama Canal claims publicly it is dealing with a situation with no historical precedent, and while this may be technically true, the Panama Canal Water Shed has seen significant precipitation fluctuations over the years. 2022 was actually the third highest over the past decade, with 2,864.5 mm of rain, with recent lows being 2,034.7 mm (2019) and 2,027.4 mm (2015). The current situation is extreme – lowest rainfall this century – but the reality of fluctuations is not new.
The neopanamax locks were inaugurated in June 2016, but even on this day, there was – due to the 2015-16 El Nino phenomenon – 0.3 m water missing for the full design draft. The problem – if not to the current extent – has been known for years and the Conagua 2015-2050 water security plan was drawn up, but according to the then-Panama Canal administrator Jorge Quijano, the plan for conservation and increased capture has not been executed. It is crucial for the coming years that action is taken on this front.
The container segment has perhaps no immediate cause for worry about its ability to transit – its priority firmly rooted in paying well-above average tolls and charges – but the business case of running some neopanamax services via the Panama Canal look quite different if cargo intake must be reduced for the next 10 months and maybe longer. The Suez Canal routing is 1,800 nautical miles longer (5 days at 15 knots) Shanghai – New York, but South China is less than 400 nautical miles longer, and Southeast Asia is actually closer.
There are vessels available, thus maybe we will soon see some liner services for a slightly slower, but overall, more economical routing via the Suez Canal.