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Problems in Panama and Suez

Drought in the Panama Canal means that shipping companies are now beginning to announce significant changes in their route networks, and at the Suez Canal, the increased security risk also means higher costs.

Before delving deeper into these issues, it is appropriate to look at recent market developments.

Container Trade Statistics has released new data on container volume, as loaded in October. Looking at the volume of TEU-miles shipped, there appears to be robust growth. Globally, there was an 11% increase compared to October last year - a slight decline from a growth of 16.7% in September. However, these high figures are misleading as they are compared to a very weak market in 2022. Measuring against October 2019, before the pandemic, global demand has grown by 4.5%. This equates to just 1.1% average per year over the past 4 years.

Misleading growth in the shadow of the pandemic

When looking at the period from January to October 2023 as a whole, demand is only 0.9% higher than in 2019. That's a growth of 0.2% per year over 4 years, which essentially amounts to zero growth compared to the pre-pandemic situation.
This modest growth is primarily driven by developments in Europe. Comparing October 2023 with October 2019, European imports have fallen by -5%, while exports have declined by -12%. The most significant drop occurred in North American exports, where freight volumes are -15% lower than in 2019. The only region performing worse than Europe is Australia/Oceania, where imports have fallen by -13% and exports by -6% compared to 2019.

In other words, this means that the 'impressive' headlines about global growth of 11% in October are misleading - the underlying reality is that the demand for various key routes is lower than before the pandemic.

Persistent challenges to the shipping schedules of shipping companies

Sailing on schedule is also not improving according to recent data from Sea-Intelligence. In October, 64.4% of ships on major routes arrived on time, which is equal to September. At the same time, the average duration of delays is now nearly 5 days. There is nothing in the new data to suggest that sailing on schedule will improve in the short term - there has been a slight downward trend over the past 5 months.

Low water levels in the Panama Canal affecting global sea freight

The water levels in the Panama Canal are currently the lowest recorded in decades, and the weather phenomenon El Niño is exacerbating the situation. Until recently, the restrictions mainly affected tankers and dry bulk carriers, while container ships faced only minor limitations. This is because ships with predictable sailing schedules are prioritized, which benefits container shipping companies. However, the continuously declining water levels mean that the canal authorities have now announced significant reductions in the number of daily transits, even for container ships. From February 2024, the number of daily transits for container ships will be almost halved.

As a result, major shipping alliances are now starting to announce changes to their networks, with several services from Asia to the East Coast of the United States opting to navigate through the Suez Canal instead of the Panama Canal. For shippers, this means longer transit times, usually adding an extra week of sailing, as well as higher freight rates to compensate for the increased sailing distance. On the return journey from the East Coast of the United States to Asia, more departures are now being planned to sail via South Africa. This will save the shipping companies the costs of a Suez transit - a factor that must be seen considering the announced price increases in the Suez Canal. However, this also means a further extension of the transit time for shippers returning to Asia.

Unless there is unexpected heavy rainfall in the coming months, it is unlikely that this situation will change before the second half of 2024, as the dry season typically runs from December to May, with May usually having the lowest water levels.

Increased risk for sea freight at the Suez Canal following attacks

The route through the Suez Canal brings its own challenges. Due to the conflict in Gaza, the Houthi militia in Yemen has begun attacking, with rockets and drones, ships heading to and from the Suez Canal. At the time of writing, they have hijacked one ship and attacked four others. It is unlikely that this will lead to a complete closure of the Suez Canal. However, shippers should prepare for increasing surcharges to cover the rising costs of war risk insurance if the attacks continue.

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