The latest drought-driven restrictions introduced on the Panama Canal will give priority to pre-booked vessels and tighten booking periods, leading to stronger competition for transit slots during the peak traffic season. Voyage planning around transit slot availability and timely communication with the local port agent will be vital to minimise delays, says Fernando Ayala, Marine Services Manager for Panama.
The Panama Canal Authority (ACP) has now set the maximum number of daily transits at 31 from 1 November this year, compared with the normal tally of 36, while maintaining a maximum draft for vessels using the neo-Panamax locks at 44 feet, versus 50 feet last year, to conserve water.
A severe lack of rainfall since the start of the year, attributed to the El Niño phenomenon, has resulted in very low water levels at Gatun Lake. This has imposed limitations on the number of vessels that can pass through locks on either side of the artificial lake, given that each vessel transit requires cycling of around 20 million gallons of water and the reservoir also supplies freshwater for the local community.
There appears to be no end in sight to the drought restrictions with the approach of another dry season from this December to May next year, coinciding with the peak season for traffic along the canal in the fourth quarter, said Fernando in a recent webinar to address the changes.
Narrower window for advance bookings
Importantly, the ACP has also introduced Operating Condition 5 that will allow a maximum of 30 daily transit reservation slots – 8 for the neo-Panamax locks and the remaining 22 for the Panamax locks – while also denying transit for Panamax-plus vessels from 1 November.
The existing Condition 3 which limits the total number of reservations for the Panamax locks to 19 slots and eliminate 3rd period competition to allow transits for non-booked vessels and reduce waiting times, will remain in place until 31 October.
Furthermore, Ayala revealed the ACP has now narrowed the advance booking window for transit reservation slots to between 90 and 31 days prior to date of arrival for neo-Panamax and 90 to 15 days prior for Panamax as of 1 November. This compares with the current booking windows of 365 to 31 days prior for neo-Panamax and 365 to 22 days prior for Panamax under Period 1.
The booking window for Period 2 has been adjusted to between 14 and 8 days prior to arrival for both sets of locks, compared with the current windows of between 14 and 4 days prior and 21 and 4 days prior for neo-Panamax and Panamax, respectively.
And, crucially, transit slots will be available by auction only – rather than pre-booking previously – under Period 3 that has been expanded to between 7 and 2 days prior to arrival for both sets of locks from between 3 and 2 days prior under the present system.
Bigger push for transit reservations
“There is now a strong focus on bookings which means there will be tougher competition for reservation slots, especially for Period 2, as transit availability for non-booked vessels will be very limited. This will definitely impact a lot of vessels using the Panama Canal,” Ayala explained.
In addition, he pointed out the current priority given to containerships, which are the main users of the canal and account for 45% of ACP revenue, will be suspended for the Panamax locks under Condition 5 and transit slots will instead be allocated according to the ACP ranking system that is based on the total number of transits and tolls paid over the previous 12-month period.
Ayala said that an increasing number of crude tankers as well as LPG and LNG carriers have started using the transit reservation system in recent months. Passenger vessels meanwhile are still able to book between 730 and 366 days prior to arrival date.
Despite the drought restrictions, demand remains high for the 82-kilometre trade link connecting the Atlantic and Pacific oceans that is the primary route for 57.5% of the total cargo transported in containerships from Asia to the eastern coast of the US, with over 14,200 vessel transits in 2022.
Around 70% of vessels using the canal are within the 44-foot draft restriction, according to Ayala, but larger container vessels have had to use the canal’s multi-modal system with ship-to-shore transfer of part of their cargo for onward transport by land in order to make the passage.
Battle to curb waiting times
The present situation has led to increased waiting times of up to 10 days mostly for vessels without reserved transit slots – up from the usual five-day wait – with as many as 135 ships stuck in queues at both ends of the key waterway versus around 90 normally, resulting in shipping delays that have hit the global supply chain.
Ayala said daily transits have averaged 32-plus, with an average waiting time of 8 to 9 days and typically around 110 vessels waiting to traverse the canal. While a number of vessels have started using the alternative but much longer route via Cape Horn, this entails significantly higher fuel consumption costs, he said.
The ACP’s measures to manage transits have though been successful in reducing bottlenecks, with the authority reporting that the total number of Panamax and neo-Panamax vessels waiting in queues had been curbed to 93 in September, compared with 97 at the same time last year.
“Despite weather conditions, the Panama Canal has maintained the number of vessels waiting at standard levels for the season, thanks to efficient management and the commitment of its workforce,” the ACP stated.
But Alaya said “there are no guarantees that the restrictions will not remain in place over the longer term” given unpredictable weather patterns as the ACP budgets for reduced daily transits of around 31 vessels going forward, which may have an impact on future tariffs.
Typical pre-booking transit fees are around $50,000 for a Panamax and $85,000 for a neo-Panamax, though operators also need to factor possible cancellation charges into the voyage cost equation. Fees can run much higher for some daily slots that are sold at auction, with one vessel transit recently going for a whopping $2.4m – albeit still shy of a reported record $2.6m.
‘Voyage planning and communication key’
There are plans afoot for construction projects to alleviate the regional water shortage, including the Rio Indio scheme that would entail a concrete dam at the Tres Hermanas site with an 8.35-kilometre water transfer tunnel from the Rio Indio Reservoir to Lake Gatun. But, with an estimated cost of $890 million and possible construction time of four years, this is still a long way from realisation.
In the meantime, shipping companies need to adapt to the ongoing challenges with the Panama Canal by factoring the latest changes into their voyage planning, according to Ayala. This will entail staying updated on the ever-changing picture and scheduling voyages accordingly.
“There is presently a lot of volatility with Panama Canal transits, which makes forecasting and voyage scheduling very difficult for ship operators. Inchcape is therefore constantly monitoring transit slot availability and informing our clients of current waiting times and any rule changes,” he said.
“We are advising shipping companies to plan their voyages around transit slot availability and pre-book well in advance to minimise delays when using the canal. For those that fail to reserve slots, waiting times could increase to between 15 and 20 days given the latest rule revisions with the primary requirement for pre-booking.”