Ocean Freight Updates: Panama Canal and Red Sea Disruptions, Container Overcapacity, COP28 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. This edition starts with the latest news around the partial blockage of the Suez Canal due to the Houthi Rebel attacks in the Red Sea.

The Panama Canal and the Suez Canal

Before we dive into the situation in the Red Sea and its impact on shipping and global trade, I would like to highlight a few news items on the Panama Canal first.

For the first time in months, the number of daily transits will be adjusted up, albeit just a little bit. When the Canal can operate at full capacity, it can handle 40 transits a day. With all the measures the Panama Canal Authority has taken because of the drought, that number is currently down to 22. Starting January 16 2024, the capacity will be increased from 6 to 7 Neopanamax vessels, and from 16 to 17 Panamax vessels, bringing the total daily transits to 24. The draft restrictions still apply, so the quantity of cargo ships can carry is still limited.

Read more on this on Container News here

The reduced capacity of the Panama Canal has a big impact on US ports.

However, some damage has already been done, according to the latest research from John McCown, who reported that November saw a 29% decline in transits by vessels in the 10,000-14,000 teu range – which use the canal’s neopanamax locks.

Mr McCown’s data showed this had an impact on US port volumes last month – west coast gateways showed a 24.5% year-on-year growth in container numbers, while east coast ports saw 8.5% growth.

At port level, the differences were even larger: Long Beach and Los Angeles recorded gains of 37% and 25.3% respectively, while New York was down 13.1%.

“The re-shifting back to west coast ports of volumes that had moved eastward is primarily behind those large swings,” wrote Mr McCown.

Relief as Panama Canal increases daily transit slots from mid-January

Shipping lines are adding new Panama Canal surcharges next year. 

In particular, CMA CGM will implement a surcharge of US$150 per TEU for all types of cargo from the US West Coast ports of Los Angeles, Long Beach and Oakland to North Europe, Scandinavia, Poland and Baltic, effective from 12 January.

Additionally, the ocean carrier will introduce the same surcharge from South America West Coast to Canada East Coast on 1 January.

Moreover, CMA CGM will apply a US$150 Panama Canal surcharge to South America West Coast from Central America East Coast, the Caribbean, Leeward, Windward and French West Indies on 1 January, excluding shipments ex-Puerto Rico and Virgin Islands for which the surcharge will be effective from 20 January.

CMA CGM announces new Panama Canal surcharges

The Panama Canal limitations and the Red Sea problems also impact the level of carbon emissions for the shipping industry. Both disruptions are causing many ships to be rerouted to much longer routes. We discuss this impact in more detail in the Sustainability section further below.

The problems in the Red Sea started halfway through November.

The hijacking of the Galaxy Leader and subsequent attacks on other vessels underscores the influence of intricate geopolitical dynamics in the Gulf region on commercial shipping. While approximately 1500 vessels transit the Bab Al-Mandeb Strait each month, the recent attacks demonstrate these vessels were specifically targeted due their connections to Israel and Israeli ports. These incidents reflect an evolution in Houthi capabilities to disrupt merchant shipping, with a potential link to Iranian involvement. 

Houthi Hijacking in the Red Sea: A Disturbing Escalation

Drought in Panama and war around the Red Sea and Suez is a slow-burning but developing crisis for the container shipping industry as both canals become choke points that could see freight rates double.

“Rates could easily double as a consequence,” said Sand, adding, “There are seven weekly services that transit the Panama Canal, if they were all to be re-routed via Suez that would require an extra three ships on each service to maintain the weekly calls.”

Panama Canal drought could boost New Year rates

Below are some highlights of a series of articles published on the disruptions in the Red Sea and the consequences on global shipping.

As carriers adjust their operations to avoid the risk in the Red Sea, shippers are left with fewer options for quick transit times as the Panama Canal is also facing risks of delays due to the ongoing drought.

The added risks have also led to higher costs for shippers, in the form of rates, fees and time. In an email, Freightos said that ZIM, Hapag-Lloyd and Maersk have each added war risk surcharges ranging from $20 and $100 per container, and at least ZIM is charging higher rates to go around Africa.

The changing routes are leading to a buildup of ships around the channel. With carriers planning to avoid or halting operations by the Red Sea, as of Dec. 16, there were 40 vessels near the strait and over 100 vessels in the area, according to an emailed update from project44.

Shipping lines avoid Suez Canal as Red Sea attacks continue

Sea-Intelligence said that using the number of services on the impacted trades, the average vessel size on each service, and an additional vessel for every seven-day increase in sailing time, it is possible to calculate how many additional vessels are needed on each trade and the total additional nominal capacity that is needed to cater for sustained round-Africa services.

“With these assumptions, a switch to round-Africa would require 1.45-1.7 million TEUs of vessel capacity. This equals between 5.1%-6% of the total global container vessel capacity. Part of the current overcapacity problem has been absorbed by slow-steaming, and while this additional capacity can also be absorbed – only just – it would require vessels to sail faster.”

Red Sea crisis: Switch to round-Africa affects required vessel capacity and transit times

Rather than risk those impacts, many container lines are taking longer, more expensive routes to reach their destinations, such as sailing south around the horn of Africa. While safer, those routes require more time and fuel, adding between seven and 14 days of transit time to round the Cape of Good Hope and inflating carriers’ costs by 15 to 20%, according to data from Freightos, a freight booking and payment platform.

Those conditions have already created an increase in freight rates such as a 14% rise in Asia – N. Europe prices in the last few days. And since ONE has added its name to the list of container lines following that approach, the strategy now affects 62% of global capacity and 19% of global volumes, Freightos said.

Ocean freight rates climb as 6 of top 10 container lines now avoid Suez Canal

Flexport stated that 90% of Suez Canal-bound container vessels are pausing or rerouting, which could remove about a quarter of the globe’s total capacity, inflate prices, and delay shipments.

Shippers should expect significant delays, Flexport said.

“It’s currently estimated that re-routing via the Cape of Good Hope will prolong transit times by 7-10 days, but it depends on where the vessel is when the re-routing decision has been made.

“Depending on the vessel’s location, some may experience an even longer delay of 2-4 weeks if they’ve had to detour from the Red Sea.”

Panama and Suez Canal double crisis threatens global supply chains

The containership charter market is set to get a boost from the Red Sea crisis, as ocean carriers look to plug holes in their networks early next year.

Moreover, due to the impact of Suez Canal diversions on their capacity requirements, the carriers are likely to reinstate suspended services and cancel blanking programmes.

Box ship owners may benefit from Red Sea and Suez diversions

Other interesting reads on the Panama Canal and Suez Canal disruptions:

General Ocean Freight News

With so much news on the Panama Canal and Red Sea disruption, I will keep the remainder of the overview short and focus on the absolute highlights.

..“in the coming years, a notable imbalance between capacity growth and demand poses a significant challenge for the container shipping sector. With an expected excess in capacity over demand, stemming from a combination of larger year-on-year growth and weak demand since 2019, the industry faces potential overcapacity challenges.”

Container Overcapacity Expected to Hit Hard in 2024

Risks to container ships and their crews are escalating by the day in the Red Sea — and with that rising danger comes the prospect of higher shipping rates.

Amid Friday’s attacks and growing evidence of route delays and diversions, the share price of ocean carrier Zim (NYSE: ZIM) spiked 18% in more than quadruple average trading volume. Shares of Hapag-Lloyd surged 16%. Maersk’s stock closed up 8%.

It’s yet another example of how bad things — wars, viruses, weather disasters — can equate to potential upside for shipping, or at least, the perception of future upside.

Why attacks on container ships caused container stocks to jump

“The pivotal point here is the level of container throughput in the ports. This was the bottleneck in 2020 – 2022 and will be the bottleneck again until capacity at the ports is enlarged either through capital development or process changes yielding greater efficiency.

The concern should be that October container volumes reached the same level where port congestion started in 2020. It is probably safe to project that November through February will have lower seasonal volumes but if March and beyond is normal and the economy continues to grow and carriers reroute vessels away from the Panama Canal, then we should anticipate port congestion is exactly the way we project traffic during rush hour in any large city. Congestion is just what happens when traffic volumes exceed a known point.

Is it Time to Worry About Port Congestion Again?

Other interesting reads in the General Ocean Freight News category:

Sustainability and Innovation

We are developing a zero-emission shipping solution for a reason. We want to help bring down the carbon footprint of global shipping. We followed COP28 with interest as what the participating countries decided has a huge impact on our climate.

Following intense negotiation and extension to the summit, the final text of the Global Stocktake called on countries to contribute, “taking into account their different national circumstances, pathways and approaches” to “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner”. It marks the first time fossil fuels were directly mentioned in a COP decision.

What COP28 Achieved – And is it enough?

Growing partnerships which drive shipping’s decarbonisation, an expanding role for the IMO, creating security for investments and striving for short-term improvements were the focus of shipping at this year’s COP climate summit.

But there is still much work to do. Adoption of future fuels remains in the early stages, with 98.8% of the fleet still sailing on fossil fuels, whilst 21% of vessels on order have the potential to operate on cleaner alternatives according to UNCTAD in their Review of Maritime Transport 2023.

Whilst shipping was not directly referenced in the official COP agreement the text did highlight the need for sectors to accelerate “renewables, nuclear, abatement and removal technologies such as carbon capture and utilisation and storage, particularly in hard-to-abate sectors, and low-carbon hydrogen production.”

What does COP28 mean for shipping?

“The International Maritime Organization’s (IMO) targets for the use of zero or near-zero fuels in 2030 can be met using sustainable biofuels. Many different sectors will compete for those fuels, so shipping is focusing on transitioning to alternative green and blue fuels. Today, only 1% of bulk, container, and tanker ships are prepared for using these fuels and fuel availability is low,” says Niels Rasmussen, Chief Shipping Analyst at BIMCO.

The IMO targets that near-zero greenhouse gas emission fuels shall represent at least 5% of the energy used by shipping in 2030, while striving to hit 10%.

Shipping gears up to meet 5-10% low carbon fuel target, but will fuels be available?

The disruption of the flow of cargo through both the Panama and the Suez Canal is forcing shipping companies to reroute ships along routes that take much longer and thus create a bigger negative impact on the industry’s carbon footprint.

Emissions are expected to increase significantly as shipping lines avoid the Suez Canal and their vessels take the long route around southern Africa.

The route will add some 3,000 nautical miles and five days to each voyage, with additional fuel consumption that could be more than 1,000 tonnes for some vessels – a situation is not favourable for ship emissions, with 3.15 tonnes of CO2 emitted for each tonne of fuel burned.

Emissions expected to increase as box ships re-route and burn more fuel

Other interesting reads on Sustainability and Innovation

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.