Overcapacity in the shipping industry is weighing on charter rates, keeping them stuck below operating expense levels and leaving hundreds of ships idle. The protectionist policies of Donald Trump could make things worse, a CEO warns CNBC.
On the Panama Canal, only 88 panamax ships sized between 4,000 and 5,100 container capacity are currently deployed on the Panama route, compared to 221 in June last year, according to shipping analysts at Alphaliner.
Panamax ships can carry up to 5,000 containers or 52,500 deadweight tons and are designed to transport goods across the Panama canal.
Meanwhile, the number of idle Panama remains high. Currently around 68 ships are idle, down from a peak of 98 in October, but most of this reduction is down to scrapping.
Zvi Schreiber, CEO and founder of logistics technology Freightos, said the problems facing ships on the Panama route were no surprise.
"The same dynamic of overcapacity and disappointing global trade that bankrupted Hanjin, pushed a Hamburg Süd acquisition and pushed carriers closer to the edge is now hitting the Panamax sector," he told CNBC via email.
"This isn't even taking into account the potential for further decline in Panama trade as a result of President Trump's new trade policies."
As a result of overcapacity, charter rates dropped below$5,000 per day last year and are currently around $4,264 according to the ConTex index of charter rates published by the Hamburg Shipbrokers' Association.
At least 100 panamax container ships need to be scrapped just so shipping rates can break even, warnAlphaliner.
"Up to one hundred further panamax ship will need to be scrapped before the segment can regain its footing again. Ultra low charter rates, currently at subopex (operating expenses) levels, have failed to revive demand for ships in this sector," Alphaliner said in its weekly newsletter.
"Demand remains largely insufficient to notably reduce the overhang of surplus ships removed from trans-Panama routes."
The panamax ship owners could try selling their ships to other operators or for use on other routes, but there are 2,008 container vessels out of a total of 4,828 ships on the water which are at scrap value, according to shipping data provider VesselsValue.
"In our system the market value is either at the scrap value or lower – therefore there is no point trying to sell the vessel on the secondhand market, you might as well sell to the scrap yards," Toby Yeabsley, head of cargo of VesselsValue, told CNBC via email.