Shippers look for alternatives as Panama Canal delays lengthen
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Shippers are now actively rearranging Asian shipments, moving back from the US east coast to the west coast, as the full ramifications of the Panama Canal’s prolonged reduced operational capacity hits home.
Facing what it has described as an “unprecedented” drought, the Panama Canal Authority has shaved a couple of metres off its maximum draft for its neopanamax locks whereby ships transiting can only go through the waterway with a 13.41 m depth and the number of daily transits has been slashed by 20% to 32 a day – measures that are expected to be in place into the new year as the El Niño weather phenomenon is likely to bring more dry weather.
Aware of the limitations climate change is bringing to bare on this crucial waterway, the canal’s administrators are looking at alternative ways to get shipments across the country.
“The Canal’s focus on the future is not only limited to addressing current challenges but also includes proactive environmental initiatives. Efforts are being made to safeguard the water basin, preserve forest cover, and explore the possibility of developing a logistics corridor to diversify cargo handling options within the country,” the canal’s administrators stated in a release yesterday.
“We have to find solutions so that we can continue to be a relevant route for international trade. If we don’t adapt, we will die,” canal administrator Ricaurte Vasquez said at a recent press conference.
Cruisegoers were left reeling yesterday with the news that Royal Caribbean’s Rhapsody of the Seas has suddenly decided to axe all its Panama Canal crossings for the 2023 – 2024 winter season, with holidaymakers now forced to book alternative flights. While the cruiseline failed to provide reasons for the sudden cancellation of this popular transit, the growing queues at the canal are thought to have played a part in the decision.
Waiting times for merchant ships have been growing this month, starting out at 15 days on August 1 and have now topped 20 days with a growing backlog of ships waiting at either end of the canal (see map below).
Special auctions are in place for cancelled slots, with very high fees demanded. Liners have reacted by implementing canal transit surcharges of up to $500 per teu.
Data from Denmark’s eeSea shows the average number of boxship transits over the past eight weeks has been 58 per week. Last week it slipped to 55.
“Obviously, if the drought continues, and we only handle, say 55 vessels like last week, the problem will accumulate,” warned eeSea’s founder Simon Sundboell.
Peter Sand, chief analyst at freight rate platform Xeneta, said shippers must now consider their options as Panama congestion is on the rise.
“Playing the spot market too tight may not be the best option right now, as sentiments push transport costs up again every month,” Sand advised.
Andy Lane from Singapore container advisory CTI Consultancy told Splash that backhaul container services can go 2,000 nautical miles further through the Suez Canal or 5,000 nautical miles further around Africa. Some headhaul services can likely be switched also to Suez routings, he suggested.
“It just takes a few weeks of lead-time to be able make such network changes. The backlog is going to take months to clear it would seem, so it would be good for the container carriers to start planning now,” Lane urged.
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The sleeping giant awakens: Indonesia reopens to the world
After experimenting with localized trials in Bali, Bintan and Batam, Indonesia effectively reopened its borders to tourists by reinstating visa exemptions for ASEAN nationals and scrapping on-arrival COVID-19 tests for vaccinated travelers on April 6. Citizens of 33 other countries including the United States, United Kingdom, China, Japan and multiple European Union nations are also eligible for visas-on-arrival. The reopening will provide a further boost to Southeast Asia’s largest economy, which has been on a gradual recovery after gross domestic product (GDP) contracted 2.1 percent in 2020 following a nationwide outbreak of COVID-19’s deadly delta variant. Businesses in the retail, transport, and hospitality sectors in particular will rejoice at a likely surge in visitor arrivals as travelers return in force – Indonesia saw 16.1 million visitors pre-pandemic (2019), but only 4 million in 2020 and 1.6 million in 2021. These encouraging prospects were undoubtedly on the minds of investors participating in the initial public offering ( IPO) of Indonesian tech juggernaut GoTo, whose shares jumped 13 percent on the first day of trading.
Nonetheless, to focus solely on pandemic-hit sectors like hospitality would also miss the larger picture of Indonesia’s growth trajectory. At a time of heavily disrupted supply chains and rising commodity prices, Indonesia’s abundance of natural resources – from coal to iron to palm oil – places the country in an enviable position of strength. Russia’s invasion of Ukraine and the subsequent spate of sanctions placed against the former has only accentuated the strain on commodities. Significant attention has already been paid to Russia’s supplies of oil and gas as well as wheat, but it would be remiss to neglect other resources like nickel (used for producing steel and car batteries, among others), of which 10 percent of the world’s supply originates from Russia. Incidentally, Indonesia has the world’s largest nickel reserves at 21 million metric tons. However, companies hoping to rely on Indonesia as an easy source of raw materials should temper their expectations. In 2021, President Joko “Jokowi” Widodo announced the urgency for the country to upgrade from its status as a commodity-based economy to encompassing more downstream components of the value chain. He made these statements at a groundbreaking ceremony of an electric vehicle battery plant in Karawang, West Java – described as Southeast Asia’s first – a non-too-subtle signal highlighting Indonesia’s “downstreaming” manufacturing push from nickel extraction to electric vehicle (EV) battery production. The country has aggressively courted investments in battery manufacturing in recent years, with Chinese and South Korean firms among the first to respond to the call.
The idea itself is nothing new. President Susilo Bambang Yudhoyono’s administration passed the Law on Mineral and Coal Mining 2009 as well as the Energy and Mineral Resources Ministerial Regulation (Permen ESDM) No. 1/2014, which forces mineral extraction companies to convert a minimum amount of raw material (ore) into semi-processed products. However, this was never strictly enforced, and exports continued until the current administration issued Permen ESDM No. 25/2018 which imposes a gradual ban on ore exports – including nickel, cobalt, iron, bauxite, copper, gold, and tin – with only processed or semi-processed materials allowed for export. This has led to hundreds of new smelters being established across the country, with the largest operated by Virtue Dragon (owned by Chinese firm Jiangsu Delong Nickel Industry) in Central Sulawesi.
The Indonesian government has similarly targeted exports of coal, which supplies more than 60 percent of Indonesia’s energy needs: in 2021, it increased the Domestic Market Obligation (DMO) for national coal producers from 10 percent to 25 percent, meaning that each holder of coal mining concession rights must sell 25 percent of all production at a discounted price to domestic market. In February 2022, the government also banned coal producers who failed to fulfil their DMO from exporting coal. In a nod to the downstreaming agenda, state-owned coal producer PT Bukit Asam is aiming to increase the gasification of coal into dimethyl ether (a substitute for LNG) as one way to add value to Indonesian-sourced coal. Indonesia’s downstreaming agenda has taken a long time to come into fruition, and – as with many of its other government policies – time will tell if this recent push bears success. That said, the odds have never looked better for a meteoric resurgence by Southeast Asia’s sleeping giant.
Source Article: The sleeping giant awakens: Indonesia reopens to the world – The Jakarta Post