Market Commentary Special: Navigating declining freight rates and demurrage in the Panama Canal

We are seeing a quieter period for product tankers in the USGC after a frenzy of fixing activity for MRs in the lead up to Thanksgiving.

We are also seeing Panama canal wait times and auction slot prices decreasing. 

The recent uncertainty around the Panama Canal has caused potential voyages with marginal econs to avoid the canal and choose other regional voyage options.

Rates have significantly dropped over the last several days with USG to Chile MR pricing from brokers at $3.4m, which has dropped by over $1m from $4.6m at the end of November. 

USG MR tonnage availability hit a low the week of Thanksgiving, but vessel tonnage is growing and owners have been considering cargoes further forward in an attempt to capture the previous strength in rates. This usually flags that further correction is on the way. Houston to Amsterdam MR rates are off 25% from recent highs. 

Houston to Amsterdam MR rates (TC14) from Sparta:

In terms of Panama Canal wait times to transit northbound using the locks for Supers is now reduced to 25 days, which is down 16 days from the last assessment of 41 at the end of last week. That long waiting vessel has now passed through the canal. 

However, the previous assessment of 41 days has always been questionable with agents simply taking the longest waiting time for a vessel and using that to estimate the delay for future ships.

Only one vessel had been waiting that length of time with the next longest being 17 days going southbound at the point of writing.      

Panama Canal Authority data shows the average wait times over the last month, which have dropped to 7.1 days northbound and 8.8 days southbound reflecting the recent improvement in waiting times.

Panama Canal Authority Website Data for Super Class Vessels:

In terms of alternative voyage routing undertaken in this period brokers witnessed only one charter of a vessel requiring potential deviation from the normal practice of transiting the Panama Canal northbound and this was a very specific COA circumstance with underlying objectives that remain unclear.

The broker advised that they have continued to monitor the economics for alternative routing recently, but vessels continued to transit the Canal northbound and charterers preferred that route.

Charterers only considered a ballast voyage via the Magellan Straits / Cape Horn on the basis of a wait time of over 41 days with the economics being marginal. 

Returning via the Cape would offer the opportunity of finding a backhaul cargo from ECSAM and could be seen as a hedge on time spent, but it is believed that only a few vessels undertook this route.

Vessels travelling to Peru or WCMex continued to favour a return voyage through the Panama Canal. 

In summary our perspective of the situation is that there has been a two-tier market in terms of time spent and costs incurred. Charterers with time slots prebooked and suitable Canal Authority rankings could transit the canal with limited itinerary impact and cost.

However, vessels that were arriving without prior arrangements have had to either wait significantly or pay the spiralling auction costs that reflected the situation.

These costs have now also dropped significantly to levels of $1.2m vs $1.7m a week ago as demand and congestion begins to ease.   

With holidays around the corner and many ship owners, charterers and traders soon to be off the desk there may be one last push higher on USG MR rates as final fixtures conclude, but this is likely to be followed by a near-term continued trend lower of rates into the quiet holiday period alongside a buildup of available tonnage.

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Michael Ryan, our Freight Commodity Owner at Sparta, brings over a decade of experience in the energy trading sector. His career started and flourished at Trafigura managing risk across products and regions before becoming Head of Risk for subsidiary Puma Energy. Michael then joined the Trafigura commercial team trading clean and gas freight while successfully growing the physical fleet through strategic dealmaking.

Sparta is a live, market intelligence and forecasting platform that enables oil traders, refiners, banks, hedge funds and wholesalers to have access to real-time and global actionable insights to capture market opportunities before others.

To find out how Sparta can allow you to make smarter trading decisions, faster, contact us for a demonstration at sales@spartacommodites.com