Network Alert - Panama Canal Backlog

Hard Deck Logistics is following that there are approximately 150-155 commercial vessels waiting to cross the Panama Canal. It is reported that the average wait time for some vessels to cross is as much as 15-21 days. The Panama Canal is a critical transportation artery for global trade. Approximately 38% of all U.S.A. container traffic transits through the Panama Canal. The majority of vessel routings that cross the Panama Canal are destined for the U.S.A. East and Gulf Ports. Additionally, it is also a critical artery utilized by U.S. exporters. 

 

The backlog of vessels waiting to cross the Panama has been steadily growing in recent months and the root cause is indeed the climate; more specifically, a continued water drought in the Panama region. As a result, the Panama Canal Authority (PCA) has been doing what it can to conserve water to allow for the necessary canal water depths for the massive ships (such as container freight ships) that cross the Panama Canal. In the most recent action, the PCA has lowered the availability of Panama Canal crossing booking slots for "Panamax" vessels (which is a classification nomenclature for the largest vessels that cross the canal). Prior to this action, the PCA also required regulation of weights of vessels strictly to reduce the weight of vessels crossing the canal. 

 

As one example, Hard Deck Logistics is aware that major shippers (retailers) and other sorts of companies are in heavy discussions with container shipping giants about alternate routes for shipping while also trying to fight against shipping surcharges as a result of this situation, which is now hitting even worse during the peak shipping season. These events surely have contributed to container spot rates soaring above shipper's contracted rates. Although, many shipping companies and Non-Vessel Operating Common Carriers (NVOCC) seem to only discuss the "Peak Season" phenomenon while not focusing on the issue at the Panama Canal. It is undoubtedly true in global supply chain transportation that delays and backlogs pull capacity out of the market, and basic economics with supply/demand, therefore, dictate that capacity (supply) is reducing even in an environment where there has been excess shipping capacity. Hard Deck Logistics is also observing container bookings taking longer to get confirmed, for example, in Asia/S.E. Asia for the transpacific trade lane. 

 

This event also stands to impact rail traffic in the U.S.A. In the first place, in 2022, US rail intermodal accounted for approximately 27% of revenue for major U.S. railroads, more than any other single rail traffic segment. What Hard Deck Logistics is now observing is that the flow of containers and shipments are delayed transiting through the Panama Canal (i.e. longer lead times) and as ocean carriers make adjustments to their schedules, there seems to be a more irregular rhythm of containers arriving to U.S.A ports. This will result in a naturally more irregular flow of containers for U.S. rail companies to plan for. Irregularity in supply chain has ripple effects all the way up and down the chain, so count on irregularity for Class I Railroads and regional Short Lines even. This will also impact capacity at transloading facilities, for example, for both rail-to-truck and truck-to-rail transfers/transloads and more. This includes but is not limited to product classifications such as commodities/liquid bulk/dry bulk, intermodal, and more. Which could most definitely have an impact on commodity pricing and send ripples through the desks of traders. 

 

The theme of supply chain disruptions continues, which only makes it more difficult for supply chain planners to forecast, order, and meet delivery performance requirements. Which also only brings more irregularity to the economy. 

 
Hard Deck Logistics will keep our clients, subscribers, and the general community updated on these developments. Please feel free to go to our website and subscribe for more focused details and business intelligence.