As a record-setting drought throttles transits through the Panama Canal, most of the main focus has been on higher-capacity ships: the container vessels, liquefied natural gas carriers and liquefied petroleum gas carriers that use the larger Neopanamax locks.
But there’s one other shipping segment that’s seeing major fallout: the dry bulk vessels carrying U.S. grain that use the smaller Panamax locks.
Trade patterns have already seen a significant shift, with nearly all of these dry bulk vessels now choosing the longer route via the Suez Canal.
Bulker execs confirm latest route
“Particularly for grain cargoes out of the U.S. Gulf to China and Asia, [the Panama Canal route] is the standard trade historically,” said Gary Vogel, CEO of Eagle Bulk (NYSE: EGLE), during a conference call last Friday. “We’re now routing our ships through the Suez, which adds about 10 days and is barely dearer when it comes to canal dues.”
Peter Allen, CFO of Genco Shipping & Trading (NYSE: GNK), said during a conference call Thursday, “We’re getting some help from the Panama Canal situation. As a substitute of going through the Panama Canal, ships are going through the Suez, which is extending ton-miles.” (Ton-miles is shipping demand measured in volume multiplied by distance.)
“It’s definitely meaningful,” said Vogel, who also noted that ballasting (sailing empty) to the U.S. Gulf from the Pacific side of South America is “a non-starter straight away.” This has led to fewer vessels available to load American grain exports, pushing up freight rates.
“We now have seen this just previously week. We fixed one among our ships out of the U.S. Gulf at a rate of $32,000 per day for a visit to the Far East routed via the Suez.”
To place that in perspective, Clarksons Securities put average global spot rates for the ship sizes utilized by Eagle Bulk — Ultramaxes and Suezmaxes, with capability of 45,000-65,000 deadweight tons (DWT) — at $12,400 per day last week, lower than half the number cited by Vogel.
Suez now far more essential to US agriculture
U.S. grain cargoes are carried aboard vessels of the Panamax size or smaller, with capability of 90,000 DWT or less, consequently of terminal constraints in each the U.S. and Asia.
Ship-position data from MarineTraffic shows that nearly all of dry bulk vessels loaded with U.S. cargoes in that size category are actually taking the Suez route and avoiding the Panama Canal. (The information also includes bulkers carrying coal and other cargoes).
In keeping with U.S. Department of Agriculture (USDA) data on loading inspections, 67% of year-to-date soybean, corn and wheat exports have loaded within the Atlantic Basin, with 56% loading within the U.S. Gulf.
The heightened importance of the Suez Canal to U.S. agriculture within the wake of Panama Canal restrictions raises one other concern: The Suez Canal itself faces risks on the geopolitical front. The Suez Canal has been shut attributable to military motion involving Israel twice before, in 1956 and in 1967-1975.
Polys Hajiouannou, CEO of Protected Bulkers (NYSE: SB), said during a conference call Wednesday: “There may be a priority with the conflict. We don’t know the way Egypt will react if there may be an escalation, and if Egypt will take some steps to scale back the number of economic ships passing through the Suez Canal. It is a query for the months to return.”
Any restrictions to Suez Canal transits attributable to an escalation of the Israel-Hamas war would result in much more rerouting of U.S. agribulk exports, and even longer voyages via the Cape of Good Hope.
Lower US exports temper Panama Canal fallout
The Panama Canal water-level crisis could be having a greater effect on U.S. farm exports if outbound volumes were higher.
Canal restrictions are coinciding with a period of reduced American exports, attributable to each lower crop production and low water levels within the Mississippi River.
USDA data on inspections of agribulk export cargoes shows year-to-date volumes through early November down 22% versus the identical period in 2022 and 27% versus the identical period in 2021.
Inspections of wheat exports collapsed within the week ending Nov. 2 to simply 71,608 metric tons, the bottom reading in 20 years, which Bloomberg attributed to drought conditions drying up the Mississippi.
The main target ahead will turn to soybeans. U.S agribulk exports seasonally spike in November to January, driven by soybean cargoes.
Here too, Panama Canal fallout is anticipated to be alleviated by reduced volumes.
The USDA recently lowered its forecast for U.S. soybean exports within the 2023-2024 marketing yr (starting Sept. 1) to 47.8 million tons, down 12% from 2022-2023 and 18% from 2021-2022.
“U.S. soybean exports, which normally dominate the fourth quarter, will remain weak this yr attributable to a lower harvest,” said shipping consultancy Drewry in a report published Tuesday. In consequence, Drewry predicted that the upside in dry bulk freight rates attributable to diversions through the Suez “shall be capped.”
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