Could coronavirus block or delay some Panama Canal transits?

panama canal

The Panama Canal is a major strategic chokepoint for global shipping — the free flow of cargo via this waterway is essential to world trade.

The high-profile drama involving the cruise ship Zaandam underscores how the coronavirus might impede this flow going forward. The Carnival Corporation (NYSE: CCL)-owned cruise ship had four dead passengers on board and at least 189 passengers and crew with flu-like symptoms, including two testing positive for COVID-19.

On Friday, the Panama Canal Authority (ACP) initially denied passage to the Zaandam, which had sought permission to transit from the Pacific to the Atlantic side of the isthmus. The ACP cited rules of Panama’s Ministry of Health (MINSA) that “if a vessel has individuals who have tested positive for COVID-10 on board, it cannot make any port operations or transit the canal.”

The decision was reversed on Saturday. The Zaandam transferred all healthy passengers to the sister ship Rotterdam while outside of Panamanian waters; no passengers or crew were allowed to set foot on Panamanian soil. MINSA and ACP then approved the transit of both vessels for humanitarian reasons, given that the ships could make it to Florida 2.5 days sooner than they could arrive in California had passage been denied. The two cruise ships passed into the Caribbean Monday morning.

The Zaandam incident followed multiple decisions over recent weeks by the ACP to tighten coronavirus precautions for transits.

All of which raises the question: What happens if commercial shipping crewmembers become symptomatic with coronavirus as vessels cross the Pacific from Asia or the Gulf of Mexico from the U.S.? Will the ACP’s need to protect its own workers and pilots — and by extension, the Panamanian populace — lead to cargo ships facing lengthy delays or being barred from passage?

Panama Canal protective procedures

Panama, a country with a population of 4 million, confirmed its first coronavirus case on March 9. As of Monday, it had 989 confirmed cases and 24 deaths, according to data compiled by Johns Hopkins University.

Multiple Panamanian workers — inspectors, deckhands and pilots — must board any vessel transiting the canal and interact with the ship’s personnel, creating a risk of coronavirus transmission.

ACP deckhands must board ship during transit. Photo credit: ACP

The ACP issued an advisory on Jan. 29 stating that all arriving ships must confirm whether they had called at any country with confirmed coronavirus cases and whether anyone on board had symptoms.

Under the procedures already in place at that time, an ACP inspector boarded a ship prior to the canal transit and asked the captain to reconfirm whether there were any confirmed or suspected cases on board. If there were, a yellow flag was flown, the ship was quarantined, and a representative of MINSA was called on board. The MINSA rep determined the next steps.

Additional procedures were announced on March 18. All vessels were required to report information on crew changes; ACP inspectors first inquired by radio about crew health conditions before boarding; ACP workers were equipped with masks; and all shipping companies were required to report any symptoms of any illness among seafarers, regardless of whether they were coronavirus symptoms.

More new procedures were announced on March 25. Special teams of ACP workers were created “to maintain the safe operation of the waterway and provide continuous service to international trade,” with these teams “transferred to and from their work areas in special transport and in small groups, with the aim of reducing the risk of infection.”

The ACP stressed that “the health and well-being of the Panama Canal team is our top priority,” while at the same time, it “acknowledged the role it plays in ensuring the global flow of cargo.”

Current status report

In response to queries from FreightWaves, an ACP spokesperson provided clarifications on new canal-transit procedures and an update on what has transpired to date.

Asked by FreightWaves whether any non-cruise vessels have had their transits delayed or cancelled due to coronavirus procedures, she replied, “We have had cases of ships that reported people with symptoms on board, but upon reviewing the cases, transit was allowed when it was confirmed that it was not COVID-19 or other contagious diseases.”

Asked what happens if a ship captain confirms that a crew change has occurred within the past 14 days and whether that delays or affects canal transits, the ACP spokesperson said that “MINSA is notified and will determine the next steps.”

On the question of whether any ACP staffers who board transiting ships have tested positive, she responded, “We have no cases within our transit operations team.”

MSC container ship transiting the canal. Photo credit: ACP

The ACP’s public statement on Friday regarding the Zaandam incident said that ships with “individuals who have tested positive…on board” are barred from transit. Asked to clarify whether a transit would be barred if a single seafarer was positive, the ACP spokesperson confirmed, “Correct, one or more.”

Friday’s ACP statement also left open to interpretation whether a commercial ship could still transit if infected crewmembers were evacuated from the ship and were not “on board.” Would the vessel then be considered “clean?” The ACP spokesman answered that in such a scenario, “The ship is quarantined and next steps are determined by MINSA.”

She also confirmed that the decision to allow the Zaandam to transit was a special case, not a precedent-setter.

Implications for Panama Canal

Panama Canal revenues are extremely important to the government of Panama. During its fiscal year (FY) 2019, which ended on Sept. 30, 2019, the ACP contributed $1.79 billion in direct revenues to the country’s treasury, accounted for $2.89 billion in total contributions to the economy, and employed over 9,700 workers.

Furthermore, the canal is part of a broader ocean-trade cluster that includes the Colon Free Zone, bunker suppliers and multiple transshipment terminals, including Balboa and PSA-Panama on the Pacific side and MIT, Cristobal and CCT on the Atlantic side. If canal transits decline, so too does the volume at these ancillary entities, and in turn, their own contributions to Panama’s government coffers.

The canal faced several headwinds even before the coronavirus: the China-U.S. trade war, economic malaise within certain trading regions, and a drought that reduced water availability for the locks system and impeded transits.

The coronavirus created new negatives. The Wuhan lockdown caused the cancellation of a number of container-ship sailings that had previously been scheduled to transit the canal. U.S. business shutdowns are spurring a new wave of cancellations starting in April.

Virus-weakened demand (and OPEC’s response to that weakness) has also led to a collapse in crude-oil pricing. Low crude pricing is bad for canal transits for two reasons. First, it decreases demand for U.S. exports of liquefied natural gas (LNG) and liquefied petroleum gas (LPG) to Asia; LNG and LPG ships are the second and third most important users of the canal, after container ships. Second, low crude prices lead to low marine-fuel prices.

Aerial view of the locks system. Photo credit: ACP

The lower the marine fuel price, the less incentive ship operators have to pay the tolls and utilize the canal as a shortcut. A year ago, an ACP executive told FreightWaves that lower fuel prices and lower charter rates prompted vessel operators “to use alternative routes” and not pass through the canal. Since those comments were made, the price of marine fuel has plunged by 40%.

During an interview with FreightWaves last week, Flexport Global Head of Shipping Nerijus Poskus said marine-fuel prices are now so low that “some of the shipping lines are considering going around Africa instead of paying the fees to go through the Suez Canal.”

The potential for coronavirus-induced canal transit restrictions must be viewed against this broader business backdrop. While there is a pressing health need in terms of protecting Panamanians, there is likewise a pressing business need in terms of keeping ship traffic moving through the canal.

Today, the risk of ships being barred from the canal is low, simply because very few non-cruise seafarers have actually been tested for COVID-19 and most seafarers have had limited exposure to landside outbreaks due to the lack of crew changes.

The future situation may be different, however. A new generation of testing kits that can deliver results in minutes is now coming to market. Also, crew changes must inevitably resume, bringing new crew aboard that had previously been landside. Incidents of seafarers testing positive for COVID-19 could become more commonplace.

If so, the key question for commercial shipping vis-à-vis the canal will be: Will MINSA allow a ship to proceed through the locks if infected crewmembers are first evacuated from the ship? 

Implications for ocean shipping

The Panama Canal is highly relevant to the container, LNG and LPG shipping markets, and much less so to the tanker and dry bulk segments.

Fewer LNG and LPG transits are a positive for rates assuming the same volume moves from the U.S. to Asia and is rerouted via the Cape of Good Hope. The longer the voyage, the more ship capacity is soaked up. However, if LNG and LPG canal transits fall because a lower volume of gas is flowing from the U.S. to Asia, that’s a negative for freight rates because it equates to reduced vessel demand.

The container shipping equation is different because in the trans-Pacific trade, the Asia-U.S. East Coast route that utilizes the canal is a much longer voyage than the Asia-U.S. West Coast route. It’s a rare case of the canal not being a shortcut.

If more container ships were to switch to the West Coast route and rail containers to eastern states from Los Angeles/Long Beach, it would reduce average voyage distance and thus container-ship demand.

Container shipping would be affected more than any other sector by any coronavirus-related issues at the canal. A hypothetical scenario in which a container ship is barred from passage due to infected crewmembers implies massive complications for the carrier and major delays for cargo recipients.

Canal workers handling a night transit. Photo credit: ACP

Consider the case of a vessel with 10,000 twenty-foot equivalent units of containerized cargo on board going from Asia to New York/New Jersey. Such a vessel would also be carrying boxes bound for Central and South America and the Caribbean Basin to be transshipped at a hub either in Panama or in Cartagena, Jamaica, the Dominican Republic or the Bahamas. If the ship could not transit the canal or call at a Panamanian port, it could not transship that cargo.

Theoretically, if MINSA did not allow the ship to proceed through the canal or call at a Panamanian hub after infected crewmembers were evacuated, the vessel would either have to unload elsewhere along the same coast and transfer cargo to a “clean” ship, or circumnavigate Cape Horn.

According to one port executive asked about this scenario by FreightWaves, “Where the cargo would be unloaded would all start from the health standpoint. Taking the Zaandam as an example, no country other than Panama even allowed the vessel to come close to its shores.

“The issue I see is the contact between crew and the pilots, boarding committee and longshoremen, and the public opinion of the various countries,” he continued. In the hypothetical scenario of a container ship that had COVID-19-positive crew who are evacuated, he responded, “I’m guessing that given the tremendous efforts the operator might encounter securing permits in each subsequent port, [the carrier] might choose to discharge everything on board and quarantine the vessel.” More FreightWaves/American Shipper articles by Greg Miller