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US$4 million? Panama Canal “queue-jumping fee” sets record

24 Nov 2023

By Nick Lung.    Photo:Victor Puente

Since the beginning of this year, the drought caused by the El Niño phenomenon has continued to affect the Panama Canal reservoir system, resulting in a reduction in the supply of fresh water required for the operation of the locks. The Panama Canal Authority has repeatedly reduced the number of ships passing through in a single day.

 

To this end, some shipping companies paid nearly US$4 million to "jump in line" to the front of the queue, setting a record high.

 

Canal water levels drop

 

The queue of ships waiting to use the canal has grown in recent months amid a severe drought. In an effort to control the situation, Panama Canal authorities have announced increasingly tough restrictions on the channel and, at the same time, are holding auctions for those hoping to jump to the front of the queue. According to bidding documents, Japan's Eneos Group paid US$3.975 million in an auction that day. On top of that, companies pay hundreds of thousands of dollars in regular shipping fees.

 

Shipping researchers say weather problems will force large tankers to stop using the Panama Canal entirely, which would extend their journeys by thousands of miles. Eric Cordova, water resources manager for the canal authority, said the lack of precipitation "will have an impact on multiple fronts, starting with a reduction in our water reserves," which would affect canal operations because large ships would be unable to pass and This type of vessel pays the highest "tolls".

 

Increase transportation costs

 

There are many people who pay to jump in line. Shipping giant Maersk also spent US$1.8 million to buy the right to join the queue for two ships. The Panama Canal Authority said the highest bidders at auctions usually go to LPG or LNG carriers. Because if they don’t jump in line, they don’t know how long they will have to wait, and paying to jump in is more worthwhile than waiting in line. Due to the blockage of the Panama Canal, freight rates on the Atlantic route have increased significantly. Data shows that recently, the refined oil freight index routes TC2 and TC16 have increased by 2.95% and 10.79% respectively. Kseneta, a Norwegian international shipping monitoring company, analyzed that the Panama Canal restrictions coincided with weak global demand, so ocean freight rates have not yet risen significantly. As international shipping recovers, the negative impact of canal traffic restrictions will gradually become apparent.

 

Is the substitution feasible?

 

Since the main routes served by the Panama Canal are the East Coast of the United States - Asia, the East Coast of the United States - the West Coast of South America, and Europe - the West Coast of South America, these routes are currently affected by traffic congestion in the Panama Canal to varying degrees. A shipping forwarder practitioner said that the Panama Canal is mainly a trade channel between Asia and the US Gulf of Mexico and East Coast ports. There are also alternatives, such as the Suez Canal, but it will be slower. However, now that the Panama Canal has begun to impose additional freshwater surcharges due to the drop in water levels, it may also become a costly expense. Therefore, the most economical and appropriate way to transport goods does require case-by-case analysis.

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