Panama Canal “priority” queue gets less expensive

The free market, at lest in part, has done its job. As the backlog to go through the Panama Canal lengthened during the final quarter of last year, the Panama Canal Authority introduced a system whereby vessels could go to the head of the line, for a higher payment. In effect that made it worthwhile for some vessels (container ships) to pay the extra, while for others (tankers, bulk carriers) the delays to get through the canal were likely to extend far into the foreseeable future.

A significant number of those vessels decided therefore to go elsewhere.

Demand therefore fell, and in turn the cost for shippers to jump the queue has dropped in tandem.

An ongoing drought has forced the Panama Canal to reduce its operating daily slots by a third and the total tonnage by more when compared with “normal times”. Losing the freshwater used to operate the canal threatens the country’s drinking-water supply, and the dry conditions are expected to last until the start of the rainy season in May or June.

As of January 11th the average auction price for Neopanamax slots, which allow for the largest class of tankers permitted to transit the canal, was $269,000, according to a Panama Canal Authority spokesperson. Vessels carrying LNG are included in that class. That price, down from well in excess of a million dollars at its peak, was the result of there being a very low number of bidders for the Neopanamax slots. Canal slots had been auctioned as high as nearly $4m last November.

The Panama Canal said on Friday January 12th that it understood clients’ decisions to turn to alternative shipping methods during the canal’s transit difficulties.

On Thursday Denmark-based Maersk said that it would use railways to move some cargo across Panama. “We will continue to support Maersk’s operations, as the announced changes affect just one of Maersk’s services – OC1 Oceania – while other services will continue to transit the canal,” the Panama Canal Authority told Reuters.

The authority said that it was developing short- and long-term solutions to limit climate anomalies’ impact on the trade route, which moves about 5% of the world’s commerce. “We understand that our customers, like us, need to adapt their operations due to the impacts of climate variations around the world and the current water shortage in the Panama Canal,” the authority said. Maersk’s OC1 service, connecting Australia and New Zealand with the U.S. East Coast cities of Philadelphia and Charleston, South Carolina, via the Panama Canal, will now consist of two separate ship loops, one Atlantic and one Pacific, while maintaining a single transit system for the cargo