Panama Canal’s FY-2024 transits down
NewsPanama Canal posts lower figures in total transits for the FY-2024 amid challenges from drought.
Panama Canal unveils new booking system and updates on Indio River project
The Panama Canal Authority celebrates the canal’s 110th anniversary, unveiling a new booking system and updates on projects and future challenges.
On 26 August, the Panama Canal Authority (ACP) held a virtual roundtable discussion to celebrate the 110th anniversary of the Panama Canal. During the event, the Panama Canal Administrator, Dr Ricaurte Vásquez Morales, shared his insights into the future of the canal, highlighting both operational and sustainability challenges and opportunities.
Enhancing water security
The Panama Canal has faced significant challenges due to a severe drought that lasted for 12 months, beginning in May of 2023. In response, the ACP has been actively working on solutions to enhance water security and ensure the canal’s continued operation.
As part of these efforts, the ACP announced that the new Long Term Slot Allocation (LoTSA) methodology will be implemented from 1 October 2024. This new system, applicable to all market segments except LNG and LPG, aims to improve transit certainty and flexibility for clients by allowing them to obtain multiple bookings in a single transaction.
The sealed bidding process for the first calendar year period for booking dates from 5 January 2025, to 3 January 2026 will be held over the period 9 September to 7 October this year with different opening dates for different vessel types .
Rerouting of LNG and bulkers
There have been concerns that some traders in LNG and food commodities, such as grains, are not returning to the Panama Canal route after being diverted due to last year’s drought. The Administrator clarified to WorldCargo News that the rerouting was not a decision forced upon the traders by the canal. Instead, he explained that some customers, when comparing prices and delivery times, choose alternative routes.
“For LNG traders, timely delivery is crucial, and the Panama Canal offers a reliable product in that regard. The canal is in constant dialogue with customers to ensure that they have a dependable transit experience,” Vásquez added.He acknowledged that some LNG and bulkers are looking for assurances around capacity and timely transit before returning to the canal.
Looking ahead, the canal plans to hold another round of talks in September with LNG producers and market participants to discuss the possibility of securing dedicated transit for these vessels.
Indio River project
Vásquez also provided updates on the Indio River water reservoir project, which aims to enhance the canal’s water management capabilities. The project is designed to ensure a consistent transit capacity, ranging from 36 to 40 transits per day.
The Supreme Court of Panama recently mandated that the water level in the canal must be restored to 1999 levels.
Vásquez emphasised the importance of engaging with local communities and addressing environmental and socioeconomic concerns as part of this project: “We are actively exploring alternative solutions as well. A significant amount of community engagement is required, and it is evident that the Indio River is the most viable option, a fact that has been recognised for the past 40 years. Engaging in dialogue with local communities is essential, as is addressing environmental and socioeconomic concerns. We have observed over the last 20 years that those residing within the watershed enjoy a better quality of life, and it is important that we maintain open communication with them.”
Vásquez noted that the initial phase of the project, which included discussions with local communities, was expected to take approximately 18 to 24 months to complete. However, following the Supreme Court’s decision, the canal is moving forward with engineering studies establishing the legal framework.
The Administrator anticipated that at least an additional four years would be needed for construction, although there might be opportunities to expedite the process. Once construction was finished, accumulating rainfall to fill the reservoir will take additional time. “Nvertheless, the entire timeline can be adhered to, and the project can proceed smoothly if we secure the support of the community,” Vásquez added.
The estimated total cost of the project is around US$2 billion, which Vásquez suggested the ACP source through market funding.
Preparing for future droughts
The ACP announced that vessel transits through the canal are soon expected to return to 36 per day, with a maximum draft of 50 feet (15 metres), which are standard conditions for this time of year. The current rainfall is expected to support an average of 34.5 transits per day through November, up from the 24 per day seen this fiscal year.
Vásquez warned that Panama is likely to experience another severe drought within the next four years, considering current rain patterns and the frequency of weather phenomena like El Niño and La Niña. He noted that lessons have been learnt from past droughts, leading to improvements in information flow and internal processes.
Adapting to larger vessels and increased tonnage
To mitigate the impacts of water shortages, the ACP is also focused on adapting its operations to accommodate larger vessels and increase tonnage. According to the Administrator, the expansion of the canal’s reservoir, along with changes in slot allocations, aims to encourage the use of larger ships and provide dedicated transits for specific types of cargo, such as LNG, LPG, and refrigerated cargo.
“In the next four years, there will be no infrastructure improvements, and this strategy would enable the canal to handle the same volume of cargo while conserving water,” Vásquez added.
Vásquez highlighted that Panama’s average tonnage per transit has increased to 43,000 metric tonnes this year from approximately 38,000 tonnes in 2023, thereby reducing water usage. He stated that although this is a short-term solution, it aligns with the market’s trend towards larger vessels.
Vásquez also noted that the market took 4-5 months to adjust to the drought, so a similar timeframe of 5-6 months is expected to restore it to its previous state. Ongoing workshops with shipping lines are being conducted to gather feedback on potential improvements for everyone involved.
Comparing the different needs of container and LNG vessels, Vásquez highlighted the need for greater flexibility with container ships due to their potential schedule unreliability from factors like adverse weather. In contrast, LNG ships, which have a shallower draft, are easier to manage and thus offer greater flexibility within the LNG segment.
“With limited capacity, it is essential to allocate resources evenly across all segments without favouring any of them, including both customers and market segments, “the Administrator said.
Future focus and revenue growth
Looking ahead, Vásquez predicted that by 2030, the focus of LNG transport would likely shift from the USA to Europe, largely due to the ongoing war in Ukraine. This shift might also make long-term slot reservations more attractive for LNG, ensuring reliable delivery times for customers. This will require some change in thinking, however, as LNG operators in particular have valued the previous flexibility of the canal to adjust deliveries according to changing market.
On the revenue front, the ACP expects to meet its goal of US$4.78 billion for this fiscal year, ending on 30 September, with a target of US$5.6 billion for the next fiscal year starting in October.
Vásquez concluded by noting that the ACP is moving towards a more stable long-term operational trend, following the disruptions experienced in 2023 and 2024.