Panama Canal drought could delay grain carriers well into 2024

Bulk grain shippers taking crops from the US Gulf Coast to Asia could be sailing via longer routes and paying higher freight costs well into 2024 in order to avoid waiting around for weeks to get through the Panama Canal vessel congestion and record-high transit fees in the drought-hit Panama Canal, traders and analysts said.

Ships moving crops such as corn and soya beans have faced wait times of up to three weeks to pass through the canal. The Panama Canal Authority is now pinning its hopes on April and May 2024, the beginning of the wet season, will bring about a replenishment of reservoir levels in the nation, enabling the draft restrictions to be removed and the number of transits per day through the canal to be increased.

Only 22 daily transits are currently allowed, down from around 35 in normal conditions. By February, transits will shrink further to 18 a day.

There are technical reasons for bulk grain ships being “at the back of the queue” when comparted to container ships and cruise ships, partly due to how far in advance the slots are booked, partly because grain ship operators tend not to be such large customers of the canal, and partly because the economics of bulk carrying (with thinner margins) are different from those of carrying containers or thousands of people on holiday.

The waiting times for bulk grain began to lengthen in October, rising from less than a week to approaching three weeks by the end of November.

This brought into play the possibility of sailing south around South America or Africa, or going in the opposite direction to Asia, via the Suez Canal. However, those routes can add up to two weeks to shipping times, elevating costs for fuel, crews and freight leases. That said, if the alternative is a three-week wait, the only real additional cost is that of fuel.

During the second half of October, only five US Gulf grain vessels bound for east Asia transited the Panama Canal. By comparison, 33 sailed east to use the Suez Canal instead, according to a US Department of Agriculture report. That was almost a complete reverse of the distribution during the same period in 2022. Another option for grain exporters has been to use rail to the north-west coast of the US, rather than barges down the Mississippi and its tributaries to the Gulf of Mexico.

According to USDA data, the percentage of US corn exports shipped out of the Gulf Coast in October fell to 56.8%, from 64.9% in October 2022 and 72.1% in October 2021.