THE effective closure of the Strait of Hormuz is placing an increasing strain on another shipping chokepoint: the Panama Canal.

Crude cargoes do not typically flow from the Atlantic basin to Asia via the panamax locks, nor do refined products on medium-range product tankers. They do now, as the Hormuz crisis forces Asian buyers to find replacements for their traditional Middle East Gulf supply.

The Hormuz crisis is also fuelling demand for propane and butane exports out of the US Gulf transported by very large gas carriers to Asia via the neopanamax locks.

Business is booming at the Panama Canal courtesy of the Hormuz crisis.

“Operational performance has been particularly strong in recent months,” the Panama Canal Authority (ACP) said in a statement to Lloyd’s List. Daily transits averaged 37 in March, with peak days exceeding 40.

Ross Griffith, head of Americas freight pricing at Argus, said in a statement to Lloyd’s List: “US Gulf loading shipments in March via the Panama Canal of crude, LPG, LNG and refined oil products, including chemical cargoes, were at parity with their highest recorded level, at 2.95m barrels per day.”

The last time energy commodity volumes through the canal were this high was in June 2021, driven by Asian LNG restocking after Covid lockdowns, he said.

The abrupt change in global trading dynamics due to the Hormuz crisis has led to more ships arriving at the Panama Canal without prearranged booking slots. This has caused wait times and auction slot costs to surge in April.

Wait times escalate for ships without reservation

The average time waiting in the queue for vessels arriving without a reservation was 5.5 days in the southbound (Atlantic to Pacific) direction on Wednesday, according to ACP data.

This is quadruple the average of 1.4 days on March 26 but down from the recent high of 6.1 days on April 19.

The highest recent maximum wait time southbound was 13.4 days, also on April 19.

The average wait time in the northbound (Pacific to Atlantic) queue for vessels without a reservation was 6.3 days on Wednesday, just below the recent high of 6.4 days on Tuesday. This compares to essentially no wait time, just 0.2 days, on March 26.

The highest recent maximum wait time northbound was 14.3 days, recorded on Wednesday.

The ACP data showed 128 vessels in the queue on Wednesday, 108 with reservations and 20 without. There were 106 ships waiting to transit the panamax locks and 22 at the neopanamax locks.

The queue hit a peak of 163 vessels on August 9, 2023, during the drought crisis, ACP administrator Ricaurte Vasquez Morales said in a press briefing later that year.

Maximum wait times in the queue during the drought were much longer, at least twice as long as they are currently.

Auction prices spike higher at both locks

Operators without a reservation that want to jump the queue can pay for that in an auction (the auction price is in addition to the transit fee).

The average auction price for a panamax locks slot was $837,500 in the week ending Monday, said Griffith, the highest since it began compiling this data in January 2024. The highest individual auction for the panamax locks this month was $1.7m, he added.

“The surge in demand from Pacific basin buyers has boosted the number of bids for these transit lanes by nearly five times compared to before the outbreak of the war, with every offered auction attracting multiple bidders,” said Griffith.

The average auction price at the neopanamax locks peaked at $1.697m in the week ending April 17, just above the previous record high of $1.685m in May 2024, during the Panama drought crisis, according to Argus data.

The highest individual auction price this month at the neopanmax locks was $4m, according to Griffith. This matches the previously reported high paid by an LPG carrier in November 2023.

The average auction price at the neopanamax locks dropped sharply to $331,250 in the week ending Monday, sinking below the panamax auction average.

“Auction prices to transit via the neopanamax locks fell off as shippers likely avoided the waterway amid the strong volatility in recent auctions,” said Griffith.

The ACP told Lloyd’s List: “The recent auction results reflect temporary market shifts and are not the result of a fee set by the Panama Canal. Auction values are determined by multiple factors, including the urgency and commercial priorities of individual clients, as well as broader supply-demand conditions.”

The ACP said that the average auction price for a slot between October and February remained stable at around $130,000. The average in March and April jumped to $385,000 “reflecting temporary market dynamics”.

Support for VLGC spot rates

Congestion at the Panama Canal is having a positive effect on VLGC spot rates in the US Gulf-Asia propane and butane trade.

VLGCs use the neopanamax locks. Transits via the neopanamax locks were already near the daily reservation slot maximum before the Middle East war broke out, and the majority of these slots are prebooked by containerships in the Asia-US trade.

To the extent additional slots are not available, or auction prices are too high, VLGCs must take the longer Cape of Good Hope route, a positive for tonne-miles.

VLGC rates were expected to decline following the Strait of Hormuz closure because the amount of lost MEG LPG supply cannot be replaced by the US Gulf due to terminal capacity restrictions.

Nevertheless, the Baltic Exchange index for the US Gulf-Japan VLGC route reached $131,779 per day on Tuesday, the highest reading since January 2024, during the Panama Canal drought crisis.

“US Gulf-laden LPG cargo transits via the Cape of Good Hope have risen to 40% as congestion at the Panama Canal grows,” said Vortexa in a report on Wednesday.

“Rerouting via the Cape of Good Hope will likely gain further momentum, extending average voyage times by 20-plus days.”