Panama Canal Slowly Returning to Normal Operations

Panama Canal Slowly Returning to Normal Operations

The recent rise in water levels within the Panama Canal has sparked optimism for a potential return to normal operations in container shipping, following over a year of restrictions due to a severe drought.

However, experts caution that while the situation is showing signs of improvement, it remains far from reaching pre-restriction levels.

Effective Thursday, the Panama Canal Authority has raised the daily quota of ships permitted to traverse the waterway from 24 to 31.

Peter Sand, Chief Analyst at the Oslo-based firm Xeneta, notes that this increase will offer only limited relief for container shipping services, as it primarily adds additional slots in the smaller panamax locks.

The disruption caused by the water shortage in the Panama Canal has had a significant impact on scheduling reliability and spot rates.

Impact of Panama Canal Disruption on Shipping Rates:

The influence of disruptions within the Panama Canal is evident in the disparity of spot rates between shipping routes from Shanghai to Houston versus Shanghai to Los Angeles Ports.

According to Xeneta data, during the peak of operational challenges caused by the Panama Canal drought in January 2024, the gap in spot rates paid by shippers for these routes exceeded USD 2,000 per FEU (40ft equivalent shipping container).

This marked the highest divergence observed since November 2022, highlighting the tangible effects that disruptions at this vital trade artery can have on the expenses of ocean freight container shipping.

The surge in rates in January 2024 likely came as a significant shock to the market, particularly considering that it occurred just two-and-a-half months after the spread had reached a multi-year low at the end of October 2023. Notably, this reversal coincided almost precisely with the Panama Canal authority's announcement of a 'roadmap' to address the water shortage in Gatun Lake.

Source: gCaptain / Xeneta