Panama Canal Delays
Dec. 1, 2023
The Panama Canal has a capacity for 38-40 daily transits and has been operating at a total of 32 daily transits between the two docks. According to the Canal Authority, the daily transit rate will be cut to 24 for late November due to an ongoing drought. This will be reduced further to 22 in December, 20 in January 2024, and 18 starting Feb 1st, 2024. The Panama Canal Authority then announced on Monday, November 27th it will add extra slots allowing ships to pay big premiums to transit the Canal. The auctions allow vessels that have been waiting for a long time to pay a one-off fee, some as high as several million dollars to transit the waterway. That has left vessels with a handful of options: wait a long time to transit, divert around the Cape of Good Hope or the Magellan Strait, or pay up to access a quicker transit slot.
Figure 1: MR2 Laden Transits Figure 2: MR2 Vessel Equivalents
Source: McQuilling Services, AIS Tracking
According to IMF data, tankers represented 37.4% of the traffic transiting the canal. The delays are squeezing tanker supply available in the Gulf by delaying their return to the Atlantic Basin. Further tracked by the AIS data, we have observed most of these oil tanker transits are MR2s carrying diesel, jet fuel, and gasoline cargoes from the US Gulf to the WC North and South America markets. For example, TC22 (USG>South Chile) TCE reached as high as US $94,230 this week after averaging US $42,813 in October for an Eco ship without a scrubber. Using the Canal Authority’s transit guidance, our base case assumes 44% of normal MR2 laden transits will be rerouted once the daily transit rate drops to 18 in February of next year. This will generate significantly higher MR2 ton-mile demand, either through longer routes to WC South America or to alternate destinations including Asia, particularly for lighter end distillates (naphtha/gasoline). This net impact is calculated to be +33 MR2 equivalents worth of demand. The resulting surge in freight costs due to higher demand (but also tighter forward position lists as normal ballasters though the canal decline) would normally pressure the diesel TA Arb for ex-USG CPP cargoes, which leads to pressured margins, runs and potential exports from the US Gulf region. However, with recent OPEC cuts widening the WTI/Brent spread, US Gulf refiners sourcing cheaper feedstock are likely to remain competitive for Europe’s requirements, particularly as we continue to wait for the increased distillate supply from the Middle East refineries ramping up, foreshadowing looming pressure on US Gulf CPP exports when this occurs in earnest.
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