The Middle East crisis has reverberated through key global shipping chokepoints thousands of miles away from the Strait of Hormuz.
Following the crippled tanker traffic through the Middle East’s main oil and LNG export outlet, the Panama Canal and the Suez Canal have seen an increase in energy commodity cargo traffic in the past half year. As a result, shipping costs have soared to record highs, and some vessel operators are willing to pay $4-5 million in an auction to secure a single passage through the Panama Canal on a certain date.
Shipping costs on all global lanes are skyrocketing as trade becomes less efficient amid re-routes, longer voyages, and falling tanker availability.
The chaos at the Strait of Hormuz is being felt at America’s trade gateway, the Panama Canal, and at the shortest route from Asia to Europe, the Suez Canal.
Traffic and fees at the Panama and Suez Canals have jumped this year, reflecting higher demand for vessel slots and passage because of the Strait of Hormuz and Bab el-Mandeb disruptions.
Separately, the Panama Canal Authority has to contend with increased energy cargo exports from the United States and higher Asia-to-US East Coast container traffic at the peak August-October container shipping season ahead of the holidays.
In addition, Panama Canal traffic has recently been capped at 34 vessels from September 4, then to 32 ships from September 15, due to reduced rainfall in the Canal’s watershed as a result of the Super El Niño. Related: The Oil Market’s Backup Plan Is Breaking Down
And bids on daily auctions to secure slots through the Panama Canal have soared to an average of above $1 million in August, up by 16 times from a year ago.
Slots for September have come with pricier, and record, tags.
At the end of August, South Korea’s SK Gas has reportedly paid as much as $5.3 million to secure a passage on September 1, sources with knowledge of the matter told Bloomberg. The previous record-high slot fee – that’s on top of the regular transit fee – was also set in August, at $4.6 million, by another South Korean shipper.
According to the Panama Canal Authority, recent auction results have reflected “significantly stronger demand.”
The median auction price paid before the war in Iran broke out in February was around $55,000.
For vessels without booked slots, the waiting time to transit the Panama Canal is 17 days now, compared to just two days in February, according to Argus Media data cited by Bloomberg.
Overall, the Strait of Hormuz crisis has hiked crude, petroleum products, and LNG cargo crossings at the Panama Canal as Asia scrambles for the U.S. supply that’s not trapped in the Middle East.
The average auction price for a slot at the Canal was between $135,000 and $140,000 before the Middle East conflict began. After the war started, that average surged to about $385,000 in March and April, the Panama Canal Vice President of Finance, Víctor Vial, said in April.
Now these slots are being bid for millions of U.S. dollars per single transit as the Strait of Hormuz crisis drags on for the seventh month.
The Suez Canal is also reporting a surge in revenues and oil tanker transits amid threats to shipping in the southern Red Sea and the Bab el-Mandeb Strait.
Demand to ship cargoes, including energy commodities and containers, through the Suez and Panama Canals has soared as the Hormuz disruption is squeezing the shipping market and sending freight rates to all-time highs.
The daily rate for chartering a tanker has recently topped $1 million for the first time ever, amid a tightening supply of vessels to carry crude oil and fuels whose owners are willing to venture passage through the Strait of Hormuz.
Ship owners and operators are also paying up for Panama Canal access as the worst oil supply disruption in history has started to spill into the shipping industry.
But right now, “All in all access to physical crude trumps freights at the moment as refineries are scrambling for supply,” shipbroker Fearnleys said in its weekly report this week.
By Tsvetana Paraskova for Oilprice.com
