Due to a record-breaking lack of rain, the Panama Canal Authority has significantly reduced the number of vessels transiting the Canal. This in order to conserve water and hopefully avoid having to reduce the maximum allowable transit draft for vessels. The reduction to 22 (from about 34-36) vessels per day will remain in effect until 1 February 2024 when it will be reduced to 18 vessels per day.

The Authority has advised that vessels without bookings may face “indefinite delays”.

The Authority recently amended its auction system by introducing a ‘fast pass’ system obtainable by vessels which have been waiting for at least 10 days, paying a one-off premium at special auctions and this relates to the last available transit slot per day. Slots have been reported as selling for 7-figure sums. In early November, it was reported that one operator paid almost USD 4 million for a slot for a neo-Panamax vessel and Panamax vessels are averaging USD 1 million to USD 1,5 million.

Where does this leave owners and charterers?

Under a standard time charter, charterers would be obliged to pay hire and for bunkers during the waiting period or to pay hire and for bunkers for the lengthier voyage round South America to avoid the delay. It would be up to the charterers to decide whether to bid at auction, but, if they did so, the cost would be for their account. Charterers may have to factor into their decision making the potential for disputes about the legitimacy of their voyage orders where the charter is coming to an end.

Under a standard voyage charter or bill of lading, owners/disponent owners would not be entitled to recover additional freight, demurrage or other payment for waiting time. It would be up to owners/disponent owners to decide whether to bid at auction, but if they did so, the cost would be for their own account (unless charterers or cargo interests agree to bid at their own expense).

It is also arguable whether owners/disponent owners would be obliged to sail via the longer route or obliged to bid at auction, in order to avoid delay at the Panama Canal. This is likely to be fact- and contract-dependent. However, it is doubtful there would be an obligation on most owners/disponent owners to buy slots at auction (since logically, only a limited number of participants could be successful).

The problems in passing through the Panama Canal are unlikely to frustrate either a time or voyage charter or bill of lading under English law (see for example, The Eugenia [1964] 2 KB 226 in which it was held that the closure of the Suez Canal did not frustrate a time charter trip from Genoa to India), save that the position might be arguable if the cargo is perishable or the charter party requires the vessel to proceed through the Panama Canal.

In order to protect their position, owners/disponent owners or time charterers should pre-book if possible and/or attempt to negotiate special contractual provisions. In principle, it would be possible to agree a clause apportioning or transferring the cost of delay (or additional transit fees); for example, time charterers could attempt to negotiate terms that the vessel would be off-hire (or that hire would be reduced) in the event of delay. In a voyage charter context, owners/disponent owners could attempt to negotiate clauses which provide for voyage charterers to pay at the demurrage rate for waiting time (similar to the Turkish Straits clauses) or additional freight for the lengthier voyage (as per BIMCO’s Stoppage of Canals and Waterways Clause 1968).

The Association is grateful to Glenn Winter at Winter & Co. for preparing this update.

Source: Skuld