Keynote Address by Ricaurte Vasquez Morales at the Capital Link 16th Annual NY Maritime Forum

During Capital Link’s 16th Annual New York Maritime Forum, Dr. Ricaurte Vāsquez Morales administrator at the Canal de Panamá (ACP), addressed how ACP turned a historic drought into a financial pivot point, rethinking its business model to keep revenues steady and increase profitability despite a significant drop in vessel transits. Dr. Morales outlined the ways in which ACP restructured its approach to transit operations in order to maximize water efficiency and adapt to a new climate of resource scarcity.

To watch the full address, please visit the following link:

Adapting to Crisis

This year’s drought had dramatic effects on canal operations, resulting in a 29% year on year drop in total transits, with declines of 21% for neopanamax locks transits and 32% for panamax transits. Yet despite these challenges, ACP’s preliminary figures for fiscal year 2024 show revenues holding steady at $4.986 billion and net income rising by 8% to $3.453 billion. Over the past five years, they have posted a 9% compound annual growth rate in revenue and an 18% rate in net income, with return on equity averaging 21%, nearly double the S&P 500 average.

Dr. Morales talked about how they took advantage of an ominous situation and attributed these results to strategic adjustments in ACP’s transit booking systems, cost cutting measures, as well as the introduction of targeted surcharges and auctions. “Never let a good crisis go to waste” he stated. Reflecting this principle, ACP moved from a conventional first come, first served model to a full booking system. This change, implemented in December 2023, meant transit slots were now reserved and paid for in advance, giving clients greater predictability and ACP a more stable revenue stream.

Prioritizing Cargo and Larger Vessels

According to Dr. Morales, amid the drought’s restrictions, ACP encouraged clients to consolidate cargo into fewer, larger vessels, allowing more goods to be moved with less water usage. This strategy also helped alleviate backlogs and maximize revenue per transit, especially for container ships, where larger vessels were given priority. “In the future, we’re going to aim to give preference to larger vessels, particularly in the container segment,” Dr. Morales said.

The Long-Term Slot Allocation (LoTSA) program, an extension of this booking model, will cover 40% of 2025’s transits through the neopanamax locks. Dr. Morales was happy to share that LoTSA has been warmly received, with all but six slots already reserved by key operators in the containership and LPG segments, and some in LNG. He also hinted at possible quarterly allocations to account for seasonal variations, giving operators the flexibility to book according to market demand rather than requiring a full year’s commitment.

Shifting Routes for LNG and LPG Carriers

The drought’s impact on the canal’s capacity drove LNG carriers to seek alternate routes, a trend that may continue. LNG transit through the neopanamax locks has yet to return to pre-drought levels, and Dr. Morales did acknowledge that many operators now view the longer Cape of Good Hope route as their primary option, leaving the Panama canal as a secondary choice for LNG shipments. “LNG is different from other segments because LNG must be on time. For them, it is critical. It is all or nothing.” he noted.

ACP is exploring ways to make LNG transits more attractive, including a potential pilot for LNG powered vessels that would allow more backhaul flexibility, but Dr. Morales emphasized that safety remains a top priority. “LNG carrier operators did take some of the LoTSA slots. However, we see that the Cape is essentially going to be the primary route, and we will be the alternative route at the time being” he clarified. On the other hand, LPG carriers are expected to prioritize the Panama Canal, maintaining it as their main route and leaving the Cape of Good Hope as the alternative option.

Additionally bulk carriers, particularly those transporting U.S. grain to Asia, were also forced to detour around the Cape of Good Hope. Despite this, it is worth noting that Dr. Morales expressed optimism that some bulk carriers would return to the canal in the upcoming grain season. Furthermore, he mentioned that ACP is working with stakeholders to provide reliable transit slots with a two-week lead time, “We have pockets of slots available, but we have to be open to all trades and all segments, so we are having conversations with them on how we can create some sort of mechanism to better serve them with the lead times they need” he commented.