Panama canal congestion drives change in MR dynamics

Low levels of rainfall have seen Panama canal booking slots for tankers become increasingly limited in July and August. This has not only increased the prices of booking slots, but has also driven up congestion. The daily average number of vessels waiting almost doubled for MRs in July and August compared to June’s figures, with the current congestion for MRs is mostly made up of Southbound laden vessels. At the same time, US Gulf-origin MR tankers have been making increased use of the Panama canal due to a redirection of CPP volumes towards the West Coast of South America. This has been driven by an increased share of Russian diesel barrels heading to Brazil, pushing US Gulf MRs out of that market.

Panama canal congestion for MR tankers per transit direction (no. of vessels)

This development has kept vessels occupied for longer periods of time, contributing to tanker supply tightness in the region. Coupled with a high level of long-haul CPP flows out of the US Gulf, these factors have supported MR freight rates in the Atlantic basin, which have risen by over 40% on average since mid-July.

Ballast voyages of MRs after discharging on a laden route via the Panama canal, per destination (LHS, no. of voyages) vs. share of ballast voyages towards the US Gulf / Caribbean (RHS, %)

Looking ahead, a pattern is emerging with US Gulf-origin MR tankers transiting the Panama canal which could further limit US Gulf tanker supply. In the past 2 months, these tankers have been ballasting decreasingly towards the US Gulf after discharging and heading increasingly towards East Asia and West Coast Mexico, potentially to find cargoes there while the Panama canal remains congested. With restrictions on booking slots set to remain until at least early September at the time of writing, we could see this pattern persist in the short term. This could provide further supply side support for Atlantic basin MR freight rates, as well as add downward pressure to Pacific MR freight rates.