Following two years marked by severe drought conditions exacerbated by the El Nino weather phenomenon, which led to a significant decrease in vessel transits, the Panama Canal is witnessing a resurgence in trade activity. Ricaurte Vásquez, the administrator of the Panama Canal Authority, shared with CNBC that the canal has revamped its business approach to enhance water utilization and forecasting accuracy. This strategic shift aims to reinstate a level of predictability and dependability in canal operations, highlighted by the introduction of a new long-term booking system and forthcoming decisions regarding a potential dam project.
The canal holds a vital position in the economic and trade frameworks of the U.S., being the principal conduit for approximately 73% of the total U.S. commodity export and import containers, which equates to 40% of all U.S. container traffic annually. The canal's transition to a fully booked system has facilitated an increase in the average size of transiting vessels, optimizing container throughput while conserving water and diminishing wait times. This adjustment has generated additional revenue in the range of $400 million to $450 million in the last quarter alone.
Vásquez highlighted the efficiency of the container slot allocation, which guarantees transit and contributes to the improved water forecast for the upcoming year. The canal operates at normal water levels, thanks in part to the advanced water recovery system of the Neo-Panamax locks, which recaptures 60% of the water used per transit, unlike the older Panamax locks.
Despite facing competition from the Suez Canal, the Panama Canal Authority anticipates a return to pre-drought cargo volumes, with a strategic focus on accommodating larger vessels and bolstering energy-related trade. The canal experienced its most severe drought at the end of 2022, leading to reduced vessel transits and significant congestion. In response, Maersk introduced a "land bridge" service to mitigate canal wait times, highlighting the global shipping industry's adaptability.
The fiscal year 2024 saw a 29% decline in vessel transits, with the most significant impacts on LNG and dry bulk shipments. However, Vásquez remains optimistic about regaining market share in the LNG sector and notes an uptick in bulk vessel transits. The canal is gradually increasing its daily transit count, buoyed by the new booking system and enhanced forecasting capabilities, anticipating a return to approximately 36 daily transits by January.
Despite a temporary setback in October due to a strike by the International Longshoremen's Association, the canal's transit activity is on an upward trajectory. Vásquez also discussed the potential benefits of the Indio River dam project, which could secure water supply for the canal if approved. This project, expected to be announced in the first quarter, underscores the canal authority's commitment to addressing future water level challenges through improved forecasting and strategic infrastructure development.
Source: Hellenic Shipping News