Ocean Freight Update: Congestion in Panama, Rising Fuel Cost, ULCVs at Anchor, Alternative Fuels, ETS, and more…

What’s happening on and around our oceans?

This is our weekly ocean freight update, highlighting interesting news and background articles we came across this week. We focus on general ocean freight news, innovation, and sustainability. With the current challenges around the Panama Canal, we are also adding a section on the Panama Canal situation.

The Panama Canal

With the latest limiting measures taken by the Panama Canal Authority, it has become a route less viable for some shippers. At the same time, the restrictions are not stopping rates from slidin; g even further down. 

Waiting tonnage increased significantly as falling water levels in the canal, caused by the ongoing El Nino drought, resulted in restrictions on vessel throughput. The number of vessels waiting in the Panama region was higher YoY on almost every day in August 2023.

Average vessel passage time through the canal in August 2022 was 2.7 days, which rose to 8 days in July 2023 and 10 in August 2023. Some vessels have taken as long as 16 days to complete the transit.

While all vessel segments have suffered from the congestion, in August the disruption appears to have impacted Handysize and Supramax vessels more severely than Panamaxes.

Congestion in Panama to support charter market

The Panama Canal transit restrictions have not stopped carriers from adding 20% of incremental capacity on the Asia-US East Coast route since the end of August, with the average capacity deployed over the last five weeks reaching 246,000 TEUs, compared to 204,000 TEUs in the preceding five weeks, according to Linerlytica’s latest report.

Capacity utilisation has slipped to 85%, as freight rates have fallen by US$1,000 since then, to about US$2,1000/FEU today (19 September).

Panama Canal limits fail to halt rate slide as box lines up capacity

General Ocean Freight News

There is another challenge on the horizon for shipping companies. OPEC is cutting the oil supply, which is driving the price of bunker fuel up. The rise in cost coincides with still falling rates, combined with a shipping capacity that is still rising.

As global freight rates continue to fall, container shipping lines are being hit by a huge spike in fuel costs.

This will inflict further damage on the bottom line of the financials of weaker carriers already challenged by second-quarter losses.

This will ensure that bunker prices continue to head north for the foreseeable future at a time when carriers need to keep a lid on costs, if not reduce voyage expenses, to mitigate collapsing revenues.

Box lines hit by rising fuel costs as OPEC cuts supply

Projections indicate that by the end of 2025, the industry will boast an impressive 30 million Twenty-Foot Equivalent Unit (TEU) slots in service. Vessel slot capacity growth, a crucial factor, witnessed a 4.5% increase in 2022 and is forecasted to expand by 5% in 2023 and further by 6.3% in 2024.

Despite the prevailing slowdown in trade, the interest in ordering new ships has remained unwavering. Over 80% of vessel orders placed in 2023 have been for dual-fuel tonnage, with a substantial number targeting neo-panamax vessels. However, experts cautioned that the historically low rate of scrapping in recent years is set to change, signifying a significant shift in the industry.

Container Shipping Nears Turning Point Amid Challenges and Chances, Syncs with 4-Year Global GDP Trend to 2027

The number of newbuild ultra-large container vessels (ULCVs) temporarily idled off the Chinese coast is growing with Asia-Europe carriers forced to halt plans to cascade incumbent ships to other trades.

Alliance partners are reportedly experiencing considerable resistance from partners to the phasing in of the 24,000 teu behemoths – stemmed to displace average 18,000 teu ships – not least because of the added pressure to fill the pooled slots against a backdrop of falling demand.

And the oversupply position is set to get much worse with another 150,000 teu set to be received this month, the vast majority of which are vessels over 10,000 teu.

This follows nearly 700,000 teu of newbuild capacity that has hit the water since June.

Demand for smaller ships boosts charter market while ULCVs sit at anchor

To manage the oversupply of container ship capacity, carriers are likely to employ a combination of strategies, including slow steaming, scrapping older vessels, and blanking sailings. Slow steaming involves reducing vessel speeds to optimize fuel consumption, which can help balance capacity with demand. Scrapping older and less efficient vessels can permanently reduce excess capacity from the market. Blank sailings, a tactic commonly used during periods of low demand, involve canceling scheduled voyages to avoid flooding the market with excess capacity. These strategies, along with network and route adjustments, are essential tools that carriers can leverage to adapt to changing market conditions and maintain profitability in the face of oversupply.

Blank sailing trends will persist due to oversupply and import demand uncertainty, affecting capacity and trade routes

Sustainability and Innovation

The Panama Canal isn’t the only waterway that is being impacted by lower water levels due to climate change. The Rhine in Europe, a critical inland waterway connecting the Ports of Rotterdam and Antwerp with Germany and beyond, is also impacted. In the United States, there are similar issues with the Mississippi.

It is a good thing that decarbonization is getting more and more traction in the shipping industry. An increasing number of ships use greener and cleaner fuels. And it’s not just the shipping companies. Ports are also launching initiatives to drive down carbon emissions. And it is expected that the new European Emissions Trading System that will go into effect at start of 2024 will help drive down emissions further as well.

A long stretch of hot, dry weather has left the Mississippi River so low that barge companies are reducing their loads just as Midwest farmers are preparing to harvest crops and send tons of corn and soybeans downriver to the Gulf of Mexico.

Low Mississippi River Limits Barges

Liner giants Maersk and CMA CGM have decided to join forces on several areas relating to decarbonisation, claiming today that the joint action will help accelerate the green transition in shipping, learning from each other to go further and faster and seeking other companies to come and join them.

The two companies said they will jointly analyse green fuels including full lifecycle and related greenhouse gases as well as helping to set the framework of mass production of green methane and green methanol.

CMA CGM and Maersk team up in decarbonisation drive

Samskip’s vessels will be powered by a 3.2 MW hydrogen fuel cell each, with diesel generators installed for backup. Fuel cells turn the chemical energy from hydrogen into electricity through an electrochemical reaction. With the use of renewables to produce hydrogen, the entire energy chain will be clean. With this technology, each vessel will be able to avoid around 25,000 tons of CO2 emissions a year when powered by fuel cells and by using green shore power at the port of call.

ABB to power Samskip’s hydrogen-fuelled containerships

With global, regional and national GHG-reduction targets becoming more ambitious and the maritime transition speeding up, the industry wonders if enough carbon-neutral fuels will be available when and where needed at economic prices.

To estimate supply trends, DNV now compiles and maintains a comprehensive global carbon-neutral- fuel-production project database.

Using this, Maritime Forecast to 2050 estimates that the probable global cross-sector production volume of carbon-neutral fuels in 2030 will be 44–62 million tonnes of oil equivalent (Mtoe). It predicts that shipping would need a huge 30–40% of this to meet expected demand of 17 Mtoe per year by then under the IMO’s current GHG strategy.

Exploring all options to keep decarbonization on course

Ships carrying everything from consumer goods to food and fuel in and out of the European Union will soon face hefty emissions bills.

The maritime industry will join the bloc’s Emissions Trading System in January, meaning big ships will start paying for carbon emissions. Some major freight firms — such as MSC Mediterranean Shipping Co. SA and A.P. Moller-Maersk A/S — could see costs run into hundreds of millions of dollars, according to BloombergNEF.

Big Emissions Bills Are Coming for Ships Sailing in Europe

The Maritime and Port Authority of Singapore (MPA), the Port of Rotterdam Authority (PoR), and 20 partners in the Green & Digital Shipping Corridor are collaborating to cut international shipping emissions by 20%-30% until 2030.

This will be accomplished by the development and use of zero and near-zero emission fuels in large container vessels (at least 8,000 TEUs) deployed along the 15,000 km route, as well as through a mix of operational and digital efficiency.

Ports of Singapore and Rotterdam join forces to cut shipping emissions

Under the new law, carbon pricing in the EU ETS is determined based on vessels rather than cargo. Alongside introducing carbon pricing for vessels traveling between EU countries, the law also has extraterritorial application.

This means that if a vessel sails between an EU port and a non-EU port, half of the emissions from the voyage will be subject to the EU ETS. Shipping companies are obligated to purchase allowances for the following emissions, 50% of emissions from voyages departing from an EU port to a non-EU port and vice versa. Moreover, 100% of emissions from voyages between EU ports and 100% of emissions from ships docked at an EU port.

European Union (EU) Emissions Trading System (ETS) effective from 1 January 2024

EU ETS 2 will apply to the following activities:

Release of fuel for consumption in any of the following sectors:

  1. Road transportation, excluding the use of agricultural vehicles on paved roads
  2. Commercial/institutional buildings
  3. Residential buildings
  4. Combined Heat and Power Generation and Heat Plants, providing heat to buildings in 2 and 3 above
  5. Energy Industries
  6. Manufacturing Industries and construction

Member States have the option to bring further sectors into the scheme within their own jurisdictions, subject to the Commission’s approval.

The new offshoot EU emissions trading scheme – EU ETS 2

That’s all for this week!

Photo by Nathan Cima on Unsplash

About the author:

Martijn Graat

Martijn Graat is Zergratran’s Head of Content. He writes about trends and innovations in supply chain and logistics, and anything related to Zergratran