Panama Canal to restrict May transits on work

  • Market: Agriculture, Coal, Crude oil, Freight, LPG, Oil products, Petrochemicals, Petroleum coke
  • 09/04/24

Maintenance at the Panama Canal for the Panamax locks, responsible for around 70pc of all ship crossings at the waterway, will cut the daily number of vessel transits through these locks for nine days in mid-May, the Panama Canal Authority (ACP) said today.

The ACP said it will reduce Panamax lock transits from 7 May to 14 May by three to a total of 17. The cuts entail two fewer "super" category slots for vessels like medium range (MR) tankers and Supramax bulkers and one fewer "regular" category slot for smaller vessels.

An additional day of downtime "allowing 24 hours for unforeseeable maintenance delays" will put the projected end-date for maintenance and the return to 20 total Panamax lock transits on 16 May, according to the ACP, constituting a nine-day reduced-transit period that should drop total transits in the period by around 27 vessels.

The potential for heightened competition amid a backlog of vessels vying to transit during this time could be mitigated by assigning "additional transits per day for each vessel category" based on the canal's "daily water consumption quota", according to the ACP.

"These additional slots may be assigned to booked vessels that have already arrived at canal waters," the ACP said. "This measure is a temporary service subject to operational assessment, open to all vessel types based on the arrival date."

The maintenance will primarily target the west lane of the Gatun locks, where ships enter the Panama Canal from the Atlantic basin, while the ACP noted that the east lane of the Miraflores locks on the Pacific side will undergo a simultaneous maintenance period from 11-12 May.

Panamax lock transit auction prices hit low

The average cost for ship operators to win an auction to transit the Panama Canal via the Panamax locks hit its lowest level Monday since Argus began the assessment in January on lower demand, particularly for dry bulkers utilizing alternative routings, and an uptick in auction slots in early March.

"Since the peak period last year, auction prices have leveled off. They are generally near normal levels today," said the ACP.

The rate for a Panamax lock auction dropped by $14,173 to $94,314, the lowest average price to transit since 26 January and representing a drop of $450,936 from the high hit on 5 February on a jump in demand ahead of lunar new year holidays across Asia-Pacific.

Of the smaller dry bulkers that can fit in the Panamax locks, only 34 Handysize, 38 Supramax, and 31 Ultramax bulkers transited the Panama Canal in March compared with the 92 Handysize, 66 Supramax, and 88 Ultramax bulkers that transited in March 2023, the lowest number of transits in March for these segments through 2017, according to Kpler data.

Dry bulk Panama Canal transits down, tanker transits stabilizing

The share of dry bulkers utilizing the Panamax locks at the Panama Canal was at 15.2pc of total transits in February, down from the 25.5pc share that dry bulkers held in September 2023, according to ACP data, before the ACP instituted daily vessel restrictions and the current prebooking/auction slot system supplanted the previous, first-come, first-serve waiting system in late October 2023.

Meanwhile, 149 MR tankers transited in March, down from the 169 that transited in the same period the year prior but up from the 107 MRs that crossed the canal in February. MR transits have risen every year in March, according to Kpler, as west coast South America diesel demand jumps on the resurgence of refinery utilization in the US Gulf coast after the first quarter turnaround season draws to a close.

Crude, product, and chemical tanker transits rose by 1.7 percentage points to 30.3pc, making up the plurality of all Panamax lock transits collectively in February from September 2023, according to ACP data.

The uptick in available Panamax lock auctions in early March has likely offset the steady demand for these vessels and contributed to the downward pressure on auction prices, while the reduced transits during the upcoming nine days of maintenance could reverse this trend in the short term.

ACP expects transit restrictions to lift by 2025

In the long term, the Panama Canal expects a return to normalcy within the next two years, beginning with the start of the rainy season in the coming weeks.

"Current forecasts indicate that steady rainfall will arrive in late April and continue for a few months," the ACP said today. "If this remains the case, the canal plans to gradually ease transit restrictions, allowing conditions to fully normalize by 2025."


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Q&A:Shipping needs cultural shift to decarbonise: Total

Q&A:Shipping needs cultural shift to decarbonise: Total

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But we have seen some good progress from cargo owners who are seeking scope 3 emissions related documents. How does TotalEnergies see marine biodiesel demand moving in the short term? In the short term, there is little incentive for the majority of buyers in the market. This is due to a lack of any regulatory mandates, as well as limited impact from existing regulations such as the IMO's carbon intensity indicator (CII) and the EU's Emissions Trading System (ETS). Despite providing a zero emission factor incentive for biofuels meeting the sustainability criteria under the EU's Renewable Energy Directive (RED), EU ETS is still on a staggered implementation basis beginning with only 40pc this year, rising to 70pc next year and 100pc in 2026. Further, EU ETS prices have been quite low, which also weighed on financial incentives for marine biodiesel. Therefore, many buyers are currently waiting for further incentives and signals from the regulators before purchasing marine biodiesel blends. Another point impacting demand is the current edition of ISO 8217, which does not provide much flexibility when it comes to marine biodiesel blend percentages and specifications. The new 2024 edition will likely provide greater flexibility for blending percentages, as well as a provision for biodiesel that does not meet EN14214 specifications. This will provide greater flexibility from a supply point of view. However, there remains stable demand from buyers who can pass on the extra costs to their customers. And how do you see this demand fluctuating in the medium to long term? If the other alternative marine fuels, such as ammonia and methanol, that are currently being discussed do not develop at the speed necessary to meet the decarbonisation targets, then marine biodiesel demand will likely be firm. Many in the market have voiced concerns regarding biofuel feedstock competition between marine and aviation, ahead of the implementation of sustainable aviation fuel (SAF) mandates in Europe starting next year. With Argus assessments for SAF at much higher levels than marine biodiesel blends, do you think common feedstocks such as used cooking oil (UCO) will get pulled away from maritime and into aviation? With regards to competition among different industries for the same biofuel feedstock, suppliers may channel their feedstock towards aviation fuels due to the higher non-compliance penalties associated with SAF regulations as opposed to those in marine, which would incentivise greater demand for SAF. An area that can be explored for marine is the by-product when producing SAF, which can amount to up to 30pc of the fuel output. This could potentially feed into a marine biodiesel supply pool. So it's not necessarily the case that the two sectors will battle over the same feedstock if process synergies can be found. Regarding fuel specifications, market participants have told Argus that the lack of a marine-specific fuel standard for alternatives such as marine biodiesel is feeding into uncertainty for buyers who may not be as familiar with biofuels. What impact could this have on demand for marine biodiesel blends from your point of view? Currently, mainstream biodiesel specifications in marine biodiesel blends are derived from other markets such as the EN14214 specification from road diesel engines. But given the large flexibility of a marine engine, there is room to test and try different things. For "unconventional" biofuels that do not meet those road specifications, there needs to be a testing process accompanied by proof of results that showcase its safety for combustion within a marine engine. 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