Supply Chain Action Points
Read this first — the conclusion, and the moves to make:
- Before 15 August, get each carrier to confirm in writing which draft version applies to a booking made before that date on a vessel transiting after it, and ask for the light-load allowance in tonnes rather than TEU.
- Re-base every East Coast budget on $8,700 to $9,100 per FEU, the range the article's own two figures imply, and treat only the $900 to $1,300 increment as new cost; treating the full $10,000 as new cost overstates the increment about sevenfold.
- Flag every East Coast booking above your own dense-cargo threshold as roll risk and book the heaviest 20% of that segment one sailing earlier, starting with the first vessel after 15 August.
- Secure a written roll-and-rebook clause for the dense segment before locking any rate; without it a roll costs seven days plus a rebooking at whatever spot is then, and the second cost is the larger one.
- Review on 15 September: a third draft cut, or spot holding above $9,500, justifies moving the dense segment to a West Coast door; spot below $8,500 means the lock was the expensive side and should not be extended.
The Panama Canal Authority trimmed maximum permitted draft from about 15.09m to 14.94m on July 24 and will cut it again to 14.78m on August 15, forcing neo-Panamax boxships to shed hundreds of TEU per transit. CMA CGM and MSC have already lifted North America rates, with forwarders expecting Far East-USEC quotes to test $10,000 per FEU.
The Analysis
Three numbers, one authority, eleven days apart. The Panama Canal Authority had about 15.09 metres in the book, cut the maximum permitted draft to 14.94 metres on 24 July, and will cut it again to 14.78 metres on 15 August. Thirty-one centimetres in total, about 2.1% of the original figure. The stated consequence is that neo-Panamax boxships will shed several hundred TEU a transit. CMA CGM and MSC have already lifted North America rates. Forwarders expect Far East to US East Coast to test $10,000 per FEU, with spot adding another 10% to 15%.
The numbers in that paragraph are 15.09, 14.94, 14.78, 31 centimetres, 2.1%, several hundred, $10,000, and 10% to 15%. Everything else is a verb somebody chose. A 2% draft cut and a 15% rate increase cannot be the same event unless something in between is doing the work.
Start with the unit, because the unit is wrong. Draft is a weight limit. TEU is a volume limit. A canal that lowers the draft does not take boxes off a ship, it takes tonnes off a ship, and the copy converts one into the other as if they were the same thing. A 40ft box of apparel might weigh 9 tonnes. A 40ft of bagged resin, ceramic tiles or drummed chemicals runs to the box's rated limit, call it 26 tonnes. Those two figures are my assumptions, not numbers from the article, but the direction is not in dispute.
So when the ship gives up several hundred TEU, the tonnes it gives up depend entirely on whose cargo is aboard that day. Four hundred boxes of light freight is 3,600 tonnes. Four hundred boxes of dense freight is 10,400 tonnes. Same headline, same ship, same canal, a factor of nearly three. "Several hundred TEU" is not a property of the vessel. It is an output of the cargo mix, and it will be a different number for your booking.
Run the capacity arithmetic and the rate move stops making sense. If a 10,000-TEU ship loses 400 slots a transit, that is 4% of the hull, and the hull size is my assumption, not a figure from the article. Four percent of capacity does not produce a 10% to 15% increase. Something else does. Carriers were going to push a general rate increase into the August peak regardless; the canal hands them a defensible reason and a date. That matters because a canal-driven increase and a demand-driven increase unwind differently. The first gives back when the water returns. The second gives back when the season ends.
Here is the part I would put in front of a chief financial officer. The article hands you two figures that constrain each other: an increase of 10% to 15%, and a level of $10,000. Divide. If $10,000 is 15% above today, today is $8,696. If it is 10% above today, today is $9,091. Far East to US East Coast spot is already between $8,700 and $9,100, and the increase you are being asked to budget for is the last $900 to $1,300 of a move that has mostly happened. That is what hits this quarter. Not $10,000. The $10,000 is a level. The $1,300 is a cost.
Who feels it first. Dense cargo on the all-water route, because each box left behind frees the most tonnes. Anyone on a DDP contract priced before 24 July, because the increment comes straight out of margin and nobody reopens a DDP over a canal. Anyone on base rate plus surcharges, safe on the base and exposed on the adders, which is where an increase like this gets parked. Light high-value cargo, untouched by the draft and fully exposed to the rate. Shippers who only use the West Coast, untouched, until their neighbours divert and the diversion turns up in their own quote.
When it lands. The rate is already in the market, because both carriers have filed. The draft date is 15 August, and it attaches to the transit rather than the booking, which is worth getting in writing instead of assuming. A booking made on 10 August for a vessel transiting on 20 August is rated and loaded under the new number, and a heavy box can be rated, loaded, and then rolled at the port. The rate arrives with an invoice. The roll does not.
The point missing from the coverage is the unit error, and the unit error has a commercial consequence. Every headline says the canal is taking away containers. It is taking away weight. Those are not the same shipper. Move foam, apparel or flat-pack furniture and your boxes are light, you load, and your problem is purely the rate. Move machinery, tiles, drummed chemicals or bagged polymer and your boxes are dense, and you are the one left on the quay, at the same quoted rate as the light shipper who sails. The canal did not raise your freight. It raised your probability of being rolled, and those two are priced in different places.
Put a month on it. Assume 40 FEU a month on the all-water route, assume the current level is $8,700, the low end of the implied range, and assume $60,000 of cargo value a FEU. All three are my assumptions. The move to $10,000 costs 40 times $1,300, which is $52,000 a month. Against cargo value, $1,300 on $60,000 is 2.2%. The level, $10,000, is 16.7%, and that is the number quoted in meetings. One is a budget problem; the other describes the market you have been in since June. The roll is the third cost and nobody models it: one missed weekly sailing is seven days, and on seasonal cargo seven days can be the gap between full price and markdown, which on $60,000 of goods is larger than the freight increase.
What changes the answer. If the canal restores draft in the autumn, which a rainfall problem usually allows once the rains return, the constraint goes away and the rate gives back part of the move. Lock twelve months at $10,000 against a three-month water problem and you have matched your contract to the wrong event. If the draft goes to 14.5 metres in September instead, $10,000 becomes a floor and the people who locked look prescient. The asymmetry is the thing to notice. Freight can fall after you lock. A rolled box cannot be un-rolled. Buy the roll protection before the rate protection.
The canal took out 31 centimetres. The market added a digit. One is physics and the other is a decision somebody made on a Tuesday afternoon. Know which one is on the invoice.
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