PANAMA Canal transits have plunged in the latest fiscal year, but revenues were flat and net income actually rose amid the drought due to surcharges, auction income and lower expenses.

The Panama Canal Authority (ACP) has not yet posted final tonnage and financial data for FY24, which ended September 30. However, ACP administrator Ricaurte Vasquez Morales displayed preliminary unaudited figures during a presentation at the Capital Link New York Maritime Forum on Tuesday.

Vasquez also sat down with Lloyd’s List during the event for an extended interview on how the ACP successfully navigated the water crisis.

ACP financial and volume performance

There were 9,936 transits in FY24, down 29% year on year, with neopanamax locks transits falling 21% and panamax transits down 32%, according to an ACP statistics released last week.

According to preliminary stats shown on Tuesday, Panama Canal Universal Measurement System (PC/UMS) volume — the measurement used by the ACP for toll assessments — came in at 423m PC/UMS tonnes in FY24, down 21% from 511m PC/UMS in FY23.

Preliminary FY24 revenues totalled $4.986bn, flat (up 0.3%) versus $4.968bn the year before. Preliminary FY24 net income came in at $3.453bn, up 8% from $3.206bn in FY23.

Revenues have risen $1.8bn over the past five fiscal years, equating to a compound annual growth rate (CAGR) of 9%. The five-year CAGR for net income was 18%.  

The ACP’s return on equity averaged 21% over the past five fiscal years, far outpacing the S&P 500 average over the same period of 12%.

The switch to full bookings

“Never let a good crisis go to waste,” Vasquez told Lloyd’s List.

“We made the decision last December to go to 100% bookings, to allocate slots and provide predictability on both sides. We moved from what was essentially a first-in, first-out business model to a full booking system where the customers pay a booking fee for certainty.”

There were 163 vessels waiting in the queue at one point in late FY23. The queue has vanished with the change to full bookings.

The ACP also pushed for transiting vessels to carry as much cargo as possible, which is both positive for ACP revenues as well as water utilisation.

“At the peak of the critical situation, we told people: If you’re going to bring a smaller vessel, talk to someone else and try to put the cargo in a single larger vessel. We arranged the reservations to assure we had larger vessels coming through.” Going forward, he said, “We will aim to give preference to larger vessels, especially in the container segment.”

The Long-Term Slot Allocation (LoTSA) programme that covers calendar year 2025 is an extension of the all-booking model. It covers 40% of next year’s transits via the neopanamax locks, and has been well-received by containership, LPG and LNG operators. All but six slots have already been taken through tenders, said Vasquez.

“Probably the next step is to do it quarterly to take seasonality into consideration, because not everyone requires transits for the full year, so we are trying to adapt to the market,” he said, referring to potential changes to LoTSA beyond 2025.

Outlook for LNG, LPG and dry bulk

Now that drought restrictions have been lifted, LPG carriers have returned to the neopanamax locks, but LNG carriers have not. LNG neopanamax locks transits are still at a third of pre-drought levels.

“LNG is different from other segments because LNG must be on time,” said Vasquez. “For them, it is critical. It is all or nothing.

“In the beginning, the Panama Canal expansion allowed LNG carriers to have their primary route [between the US and Asia] through the canal, with the Cape of Good Hope as their alternative route. It takes 1.8 to two times the vessels to do the longer route versus going the canal, but given that the fleet is available and rates are reasonable, they have said they will do the long-haul route in return for the certainty that the ships will be on time.”

LNG carrier operators “did take some of the LoTSA slots”, he added, and they will diversify routing and use the canal for some of their voyages. “However, we see that the Cape is essentially going to be the primary route and we will be the alternative route.

“Conversely, that is not going to happen for LPG. I think LPG will take the Panama Canal as the primary route and the long haul as the alternative.”

LNG ships face the strictest limitations of any vessel class in the canal due to safety concerns.

Asked whether the ACP could relax some of the restrictions to bring more LNG business back to the waterway, Vasquez said, “One area that could be interesting is that we are now getting more LNG-powered vessels transiting [many larger containership newbuilds have switched to LNG bunkers]. An LNG carrier in ballast that comes through the canal is essentially the same as any other LNG-powered vessel. So, can we have more flexibility on the backhauls? Maybe that’s an experiment.”

At the smaller panamax locks, the primary market focus has been on dry bulk carriers. Bulkers transporting US grain to Asia shifted en masse to the Cape of Good Hope route during the Panama drought. The big question ahead is whether bulkers will fully return to the canal in the next US grain export season, which occurs in late autumn and early winter.

“We believe some will be back,” said Vasquez. Asked whether a full return is possible, he said “it could be”.

He said bulkers are looking for confirmation of transit slots with 14 days’ lead time. “We have pockets of slots available, but we have to be open to all trades and all segments, so we are having conversations with them on how we can create some sort of mechanism to better serve them with the lead times they need.”

New reservoir still years away, not 100% certain

The debut of the neopanamax locks in June 2016 increased the overall water consumption of the canal system. The ratio of water use in the neopanamax locks to the panamax locks is 2.1 to one. With more droughts to come, the focus is on water conservation and finding a new water source.

Vasquez said the canal has made considerable strides on water conservation, using cross-filling in the panamax locks and water-saving basins in the neopanamax locks. The use of larger vessels also allows for more cargo per cubic meter of water usage.

The new water source is slated to come from the Rio Indio reservoir project. Asked whether there was a 100% chance that Rio Indio will happen, Vasquez responded, “We are not 100% sure but I think the likelihood of a new reservoir is improving.”

The flooding of the land at the Rio Indio site will require the relocation of the population that lives there now. The ACP was given the right to regulate the watershed at the site through a Supreme Court ruling on July 2.

“With the mandate we received on July 2, we now have the legal framework that allows us to make a more direct approach to the families and communities and say: Look, this is an opportunity for human development and this will improve the quality of living. The building of the infrastructure will provide jobs and we will respect their rights. We are working to give them land titles, and then it becomes a different conversation.

“There will not be a single solution on the human side. It requires you to address 400 or 500 families with a basket of solutions. One size doesn’t fit all. You have to address the issues and that takes time.

“And of course there will always be radical groups,” he said, referring to opposition to relocation.

Asked how soon shipping clients should expect the canal to have access to water resources from a new reservoir, he said, “That depends on how fast we can do the human side [referring to the relocations]. Let’s say it takes two years, and everything else starts in year three. That will probably take us to 2030 or 2031.”