Panama Canal's reduced capacity puts shipping companies at risk during dry season

Shipping companies are bracing for a tough season ahead as dry weather in Panama threatens to halt large oil tankers from using the Panama Canal, forcing them to take longer routes.

PHOTO: Port of Balboa at Panama's Pacific Ocean side. Getty Images

Earlier this month, the Panama Canal Authority (ACP) announced that it will reduce the number of ships it allows to pass through each day from 32 to 24 vessels.

The region is experiencing record-low rainfall, resulting in unprecedented low water levels in Gatun Lake. The 430 square kilometres of Gatun Lake form a majority of the Panama Canal. By February, daily transit slots might drop to half of the waterway's typical capacity, ACP said.

October was the driest month on record in Panama in 73 years.

The Panama Canal is mostly utilised by container vessels, dry bulk carriers, and gas carriers. Chemical and oil tankers use it to a lesser extent. However, the recent decrease in transits will have a greater impact on larger oil tankers, as they no longer will be able to compete for auction slots and are unable to schedule in advance like container ships do, energy and ship brokerage firm Poten & Partners said in a report. As a result, alternative routes will need to be explored.

The report says that auction slots for Neopanamax locks will be mostly taken up by container ships and gas carriers. "Large oil tankers will not feature in this trade anymore," as they will not be able to schedule in advance and are unlikely to compete in auction slots. A recent auction slot won by very large gas carriers (VLGC) went for $2.85 million, the report claims.

Tramp ships, which do not have fixed schedules and trades in the spot market, will also face a significant challenge. The Panama Canal provides a shortcut between the Atlantic and Pacific oceans. Avoiding it will require sailing around Africa or the bottom of the Americas, it added.

By Debarati Bhattacharjee

Please get in touch with comments or additional info to news@engine.online