The world of seaborne gas and oil trading is on the verge of a major transformation, and it all centers around the Panama Canal. From the start of the next year, a significant shift is looming with the real possibility that no large tankers could transit the Panama Canal, and even Very Large Gas Carriers (VLGCs) might find themselves pushed out from this crucial interoceanic waterway. This impending change is set to bring dramatic alterations to global seaborne trade patterns and could have far-reaching effects on the Panama Canal cruise industry.
The Canal’s Struggles:
At its zenith, the Panama Canal could handle an astounding 40 ship transits every day. However, this capacity has been gradually eroded due to months of record drought taking their toll. In conjunction with these challenges, the canal administrators have had to reduce the maximum draft limits for ships passing through its larger neo panamax locks by nearly 2 meters.
The year 2023 has been particularly harsh, with 41% less rainfall than usual, leading to unprecedentedly low water levels in Gatun Lake, the lifeblood of the Panama Canal and a critical component of Panama Canal cruises. The lake plays a vital role in facilitating ship transits and providing freshwater to over 50% of Panama’s population. Each vessel transiting the locks consumes roughly 52 million gallons of water.
Drastic Reduction in Transits:
As a response to the current conditions, the canal’s administrators are set to reduce the number of transits from 31 down to just 18 in the coming three months, a figure that will persist until further notice. This reduction will impact the slots available for the newer, larger neopanamax locks, which will dwindle to just eight per day. These slots are likely to be predominantly occupied by container vessels, affecting both seaborne trade and cruise schedules.
The Implications for Large Tankers and Gas Carriers:
Large oil tankers are expected to no longer feature in this trade, with implications for Panama Canal cruises. They will be unable to schedule in advance, unlike container ships, and may struggle to compete for auction slots. Reports from tanker brokers Poten & Partners suggest that this reduction in slots will likely push many tramp vessels, including tankers and dry cargo ships, away from the Canal. This could result in increased ton-mile demand and possible changes in segment utilization, affecting both logistics and Panama Canal cruise offerings.
Clarksons Research further reinforces this outlook, suggesting that from early next year, no VLGCs may be able to transit through the new locks, while transits through the old locks will be significantly reduced. This could lead to significant additional tonne-miles as ships opt for alternative routes, such as sailing around the Cape of Good Hope or via the Suez Canal, impacting the availability of Panama Canal cruise opportunities.
Impact on Rates and Market Dynamics:
This impending change has already impacted market dynamics and could affect Panama Canal cruise pricing. Rates in both the futures and spot markets have firmed up, although spot market liquidity has decreased as industry players assess the situation. Dry bulk shipping is also expected to see a shift, as more large ships may explore alternative routes rather than waiting at the canal, which has consequences for Panama Canal cruise itineraries.
Alternative Routes and the Changing Landscape:
Despite the restrictions at the Panama Canal, the market is expected to find alternatives. Larger ships may opt to circumvent the canal by sailing around the Cape Horn into the Pacific, which would add tonne-miles and support the demand for bigger vessels, impacting Panama Canal cruise routes and options. This strategy has been encouraged by recent reports from Greece’s Xclusiv Shipbrokers.
The Changing Trade Patterns:
The restrictions at the Panama Canal have already led to a significant shift in dry bulk shipping. Analysis by S&P Global reveals that the Suez Canal’s share of US Gulf to Asia shipments has surged to 83% in October, compared to just 23% a year ago.
In conclusion, the prospect of no large tankers and gas carriers transiting the from next year is a reality that the industry must grapple with. It’s a testament to the ever-evolving nature of the supply chain and logistics sector, where adaptability and alternative routes are key to overcoming challenges presented by the changing global landscape, with potential implications for Panama Canal cruises.