Yves here. While much attention is currently focused on energy and food suppliers, alongside impending sulphur challenges, we should not overlook the significant impact of escalating sea vessel costs on inflation and shortages. These costs arise both from contracting for carriage and the longer shipping routes that are becoming necessary.
By Tsvetana Paraskova, an experienced journalist covering energy and commodities, who has contributed to Oilprice.com for nearly a decade, exploring global energy markets and the geopolitical and economic factors influencing supply and demand. This article was originally published at OilPrice
- Disruptions in the Hormuz and Red Seas are affecting global shipping, forcing more energy shipments to reroute via the Panama and Suez Canals, leading to longer and less efficient trading patterns.
- Costs for accessing the Panama Canal have surged, with auction prices reaching a staggering $5.3 million and waiting times climbing to 17 days due to high demand and reduced capacity.
- The overall tanker market is facing immense strain, with charter rates exceeding $1 million per day as refiners compete for limited crude supplies and available vessels.
The crisis in the Middle East is echoing across crucial global shipping routes, far removed from the Strait of Hormuz.
Following disruptions in tanker traffic through the Middle East’s primary oil and LNG export channels, both the Panama and Suez Canals have observed an uptick in energy commodity traffic over the past six months. This shift has led shipping costs to soar to unprecedented levels, with some vessel operators willing to pay between $4 million and $5 million at auction to secure a specific date for passage through the Panama Canal.
Shipping expenses on all global lanes are escalating as trade inefficiencies mount due to rerouting, extended voyages, and a decline in tanker availability.
The turmoil at the Strait of Hormuz impacts America’s vital trade corridor, the Panama Canal, and the most direct route from Asia to Europe, the Suez Canal.
Traffic and fees at both the Panama and Suez Canals have surged this year, driven by increased demand for vessel slots due to the disruptions in the Strait of Hormuz and Bab el-Mandeb.
Additionally, the Panama Canal Authority faces challenges from rising energy exports from the United States and heightened container traffic from Asia to the U.S. East Coast as the busy container shipping season from August to October approaches.
Recent adjustments to Panama Canal traffic have seen a cap placed at 34 vessels as of September 4, reduced further to 32 ships from September 15, due to lower rainfall in the Canal’s watershed linked to the Super El Niño phenomenon.
In August, bids on daily auctions for slots through the Panama Canal skyrocketed to an average exceeding $1 million, marking a 16-fold increase compared to the previous year.
As of late August, South Korea’s SK Gas reportedly paid up to $5.3 million for a passage on September 1, as disclosed by sources familiar with the situation. This set a new record, surpassing the previous peak of $4.6 million, also established by a South Korean shipper in August.
The Panama Canal Authority has confirmed that recent auction outcomes indicate “significantly stronger demand.”
Prior to the conflict in Iran in February, the median auction price was approximately $55,000. Now, vessels without reserved slots face a 17-day wait to transit the Panama Canal—up from just two days in February, according to data from Argus Media cited by Bloomberg.
The ongoing crisis in the Strait of Hormuz has significantly increased the volume of crude, petroleum products, and LNG crossing through the Panama Canal as Asia seeks U.S. supplies that remain unaffected by Middle Eastern disruptions.
Before the Middle Eastern conflict began, the average auction price for a Canal slot ranged between $135,000 and $140,000. This average surged to about $385,000 in March and April, as highlighted by the Panama Canal Vice President of Finance, Víctor Vial.
Now, bids for these slots are reaching millions of dollars for individual transits as the crisis in the Strait of Hormuz persists into its seventh month.
The Suez Canal is also experiencing a rise in revenues, with an increase in oil tanker transits due to threats in the southern Red Sea and the Bab el-Mandeb Strait.
Demand for transporting cargo, including energy commodities and containers, through the Suez and Panama Canals has surged as the ongoing Hormuz disruption continues to place strains on the shipping market, pushing freight rates to all-time highs.
The daily charter rate for tankers has recently surpassed $1 million for the first time, attributable to a shrinking supply of vessels available for transporting crude oil and fuels, particularly through the Strait of Hormuz.
Shipowners and operators are increasingly investing in access to the Panama Canal as the most severe oil supply disruption in history spills over into the shipping sector.
At this moment, “access to physical crude is more critical than freight costs, as refineries urgently seek supply,” noted shipbroker Fearnleys in its recent report.
