Drought in the Panama Canal is forcing Maersk to use a “land bridge” for Oceania cargo.

A view of stranded boats on Lake Alhajuela during the summer drought in Colon province, 50 km north of Panama City, Panama, April 21, 2023. Lake Alhajuela is one of the main lakes that supplies water to the Panama Canal locks and is at its lowest level since last years.

Luis Acosta | Afp | Getty Images

Drought conditions in the Panama Canal led the shipping giant Maersk this week to inform clients that vessels carrying cargo from Oceania (Australia and New Zealand) will no longer pass through the canal due to persistent low water levels. Maersk will service the client’s containers using a “land bridge”.

Instead of going through the Panama Canal, the vessels would call at Balboa ports in Panama on the Pacific side – unloading cargo bound for Latin America and North America and picking up cargo bound for Australia and New Zealand. Panama’s Manzanillo port on the Atlantic side will be used to unload cargo bound for Australia and New Zealand and pick up cargo bound for Latin and North America. Once in port, the containers would be loaded or unloaded and then moved on an existing railway 80 kilometers across Panama to be picked up by another vessel. According to Maersk, the service change affects two transits per week.

The severe drought has led to water depth and weight restrictions on ships passing through the Panama Canal and additional container surcharges that seafarers have imposed on carriers for months.

“Based on current and projected water levels in Lake Gatun, the Panama Canal Authority (ACP) has had to reduce the number and weight of vessels that can pass through the canal. While we continue to work closely with the ACP, moderate and adapt our operations to the changes, we have made changes to services , to ensure that our customers are impacted as little as possible,” Maersk’s client advisory said.

Maersk emphasized that there will be no delays for the Northbound cargo stop in Philadelphia and Charleston. Companies like McDonald’s‘s import their Wagyu beef from Australia and use this route to bring their beef to the east coast.

For southbound vessels, Maersk has warned customers that they may experience some delays.

The company is also canceling the shipping route to Cartagena, Colombia.

The Panama Canal Authority increased the number of transit slots to 24 a day this month, after first announcing in February a reduction in ship crossings to 18. But that is far below the daily transits of 36.

The Panama Canal is popular for East Coast trade because it is faster than other options. It takes 41 days to transport ocean cargo from Shenzhen, China to Miami, Florida using the Suez Canal. The journey through the Panama Canal takes only 35 days. The latest water level issues in the canal as it is expected to receive more shipping as ocean carriers avoid the Red Sea due to the continued risk of a Houthi attack, with Maersk among the carriers recently forced to halt Red Sea operations.

The Panama Canal carries 40 percent of all U.S. container traffic each year, totaling roughly $270 billion in cargo annually.

From the end of December to April is traditionally Panama’s dry season.

According to the PCA, it takes about 50 million gallons of fresh water for a vessel to pass through one of the locks. Panamax locks lose more water compared to a Neo-Panamax lock. Neo-Panamax locks have a water recovery system that can recover 60% of the water used when the vessel passes through the locks. Panamax lanes do not have the ability to trap water like Neo-Panamax locks.

Maersk emphasized that it is not bypassing the Panama Canal as a whole, but its decisions related to Oceania cargo traffic will affect the declining volume of cargo passing through the Panama Canal. In 2023, 510 million tonnes of cargo were reported to have passed through the canal, which was eight million tonnes less than in 2022. Despite the decline in volumes, the Canal Authority reported record revenues from October 2022 to 20 September 2023. Surcharges and other fees added to cross the channel spurred revenue growth. From October 1, 2022 to September 30, 2023, the PCA received $3.3 billion. That was $319 million more than a year earlier.

The Panama Canal Authority said its multi-modal transport system is a way for maritime customers like Maersk and the PCA itself to cope with the effects of climate variability around the world and the current shortage of water in the canal. “We will continue to support Maersk operations… We are focused on providing both short-term and long-term solutions for our customers when climate anomalies affect our operations,” it said in a statement to CNBC.

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