VLGC rates hit record highs on Panama Canal delays

Tight vessel supply and canal congestion have seen VLGC rates surge, but a recent dip in availability is set to be short-lived

Very large gas carrier (VLGC) freight rates saw record highs on the Ras Tanura-Chiba route from the Mideast Gulf to northeast Asia in November, largely owing to Panama Canal delays. Levels started to ease after vessel availability improved last month, but the effects may be short-lived as winter demand strengthens.

Ras Tanura-Chiba rates hit $149/t on 18 November, as vessel supply tightened in the region on congestion at the canal and delays at Indian and Chinese ports. The Houston-Chiba rate from the US Gulf coast to northeast Asia rose to $208/t on 5 December, the highest since it reached $220/t in August 2015.

Lower availability was responsible for the gains with several factors involved. In the east of Suez market, poor weather conditions in southeast Asia led to some VLGCs missing arrival dates, forcing charterers into the spot market to find prompt replacements. The delays at Indian ports were owing to high inventories slowing cargo discharge rates, while Chinese ports were also affected by the bad weather.

In the west of Suez market, waiting times at the Panama Canal have continued to cause headaches for charterers and shipowners, especially as US Gulf exports began to rise this winter. Delays were elevated for most of November as LNG and containership traffic increased.

Demand for US LNG exports has increased owing to rising production and export capacity and greater competition for non-Russian supply. Congestion has been exacerbated by recent persistent fog, which the Panama Canal Authority (ACP) says has limited its ability to transit vessels.

Waiting times for an unbooked vessel transiting northbound through the expanded Neopanamax locks rose to nearly 20 days on average in November, peaking at a record-high 25 days on 28 November, ACP data show. For a southbound journey, waiting times averaged 15.5 days and peaked at a record high of 22 days on 2 November. This compares with average waiting times of eight days and 10 days for northbound and southbound voyages, respectively, in October. The congestion caused the rates for auctioned transit slots to surge, with four VLGCs having to pay in excess of $2mn, a shipping agent said, compared with a base rate of $93,500. The highest fee paid at the auction was $2.6mn on 29 November.

Panama Canal delays and freight rates briefly declined before recovering and even exceeding the highs recorded in November, for a southbound transit and on the Houston-Chiba VLGC route, respectively. Waiting times at the Neopanamax locks increased again to 24 days for a northbound voyage by 5 December, but they fell to just three days southbound. The Ras Tanura-Chiba rate stood at $142/t and the Houston-Chiba at $208/t.

Fleet's firm footing

All three of the major publicly owned VLGC shipowners boosted their profits in the third quarter compared with a year earlier on higher TCE rates. But the companies' focus was largely on the outlook for the market in 2023, with an eye on the large number of newbuild VLGCs set to be delivered next year. The market will need to rebalance next year given the influx of new vessels and cuts to Opec+ crude production that are likely to reduce Mideast Gulf LPG exports, according to the shipowners.

An increase in vessel demand for US Gulf coast exports to Asia, incoming IMO emissions legislation that could pare availability, and a possible removal of sanctions on Iran that allow it to ship more LPG are scenarios that could help balance the newbuild orderbook, Oslo-listed Avance Gas says. The regulations are expected to reduce fleet availability as older vessels are likely to face speed limits to cut emissions, Avance says. Oslo-listed peer BW LPG also expects VLGC availability to be affected by a reduction in the fleet's speed and efficiency next year.

VLGC owners' results
3Q22	3Q21	±%
BW LPG
Profit $mn	46.4	38.6	20
TCE $/d	37,200	27,800	34
Avance Gas
Profit $mn	11.6	4.2	176
TCE $/d	32,954	27,548	20
Dorian LPG
Profit $mn	20.3	14.1	44
TCE $/d	40,632	30,996	31

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