Drought in the Panama Canal will delay the passage of bulk carriers until well into 2024

Large grain ships carrying crops from the export hub of the US Gulf Coast to Asia are sailing longer routes and paying higher freight rates to avoid ship congestion and record transit rates in the Panama Canalhit by drought, traders and analysts said.

The traffic jam in one of the world’s main maritime trade routes comes at the peak of the season for American crop exports, and rising costs threaten to reduce demand for U.S. corn and soybeans, which have already given up market share. market to Brazil in recent years.

Ships carrying crops have had to wait up to three weeks to pass through the canal, as container ships and other vessels sailing on more regular schedules are hogging up the few available transit spaces.

According to analysts, the restrictions could continue to hinder grain transportation well into 2024, when the region’s wet season begins to recharge reservoirs and normalize navigation in April or May.

“It is causing a huge disruption in both expenses and delays“, said Jay O’Neilowner of the consulting firm HJ O’Neil Commodity Consulting, adding that it is unlike any other he has seen in his 50 years of following global shipping.

The Panama Canal Authority restricted ship transit this fall due to a severe drought that limited the supply of water needed to operate its lock system. The Authority did not respond to a request for comment on the delays in grain shipments.

Currently only 22 daily transits are allowed, compared to the 35 that are allowed under normal conditions. In February, transits will be reduced to 18 daily.

Grain ships are often at the back of the queue, typically seeking transit slots just a few days before arriving, while others, such as cruise ships and container ships, book months in advance.

The Authority also first offers the few available slots to its largest customers, none of whom are grain haulers, O’Neil explained.

Available time slots are auctioned off, but demand is exceptionally high. Some time slots have cost a million dollars or more, unsustainable costs for the traditionally low-margin grain trading business.

“The grain trade and the bulk carrier segment are going to be the last clients to pass through the Panama Canal. I would not trust the Panama Canal in the short term“said Mark Thompson, principal operator of Olam Agri.

Waiting times for bulk vessels went from five to seven days in October to about 20 days at the end of November, according to O’Neilleading more bulk carriers to change routes.

Options include sailing south, around South America or Africa, or transiting the Suez Canal. But these longer routes can add up to two weeks to transportation times, raising fuel, crew and freight costs.

The benchmark Baltic Dry Indexconsidered a reference for grain freight, reached a high in a year and a half on December 4, more than double that of the previous month.

Although grain prices have fallen from 2020 highs, rising freight costs will impact grain and oilseed importers who purchase for human and animal feed.

“Commercial companies have been finding ways to get around the problem. But, without a doubt, it costs the end user more money”said Dan Basse, president of the consulting firm AgResource Cobased in Chicago.

In the second half of October, only five U.S. Gulf grain ships bound for East Asia transited the Panama Canal, while 33 sailed east to use the Suez Canal instead, according to a Department of Transportation report. United States Agriculture (USDA). In the same period last year, 34 ships used the Panama Canal and only seven used the Suez Canal.

Some U.S. exporters have also diverted shipments to Asia to load at ports in the Pacific Northwest.

But this also comes at a higher cost, since those facilities are supplied with grain primarily by rail, versus the cheaper barge-delivered loads that supply Gulf Coast exporters.

Only 56.8% of all U.S. corn exports in October were shipped from Gulf Coast ports this year, down from 64.9% in October 2022 and 72.1% in October 2021, according to weekly data of USDA export inspections.