Swedish Club Warns Cape Horn Is No Simple Panama Canal Alternative

A tightening Panama Canal is once again forcing shipowners to weigh longer routes around South America, but the Swedish Club is warning that Cape Horn and the Strait of Magellan are far from straightforward substitutes.

In a new member alert, the marine insurer said worsening water conditions at the Panama Canal are coinciding with security disruptions around the Suez Canal, Red Sea and Strait of Hormuz, leaving owners with fewer attractive routing options.

The latest Panama restrictions are being driven by a strengthening El Niño and a growing water deficit across the canal watershed. Rainfall from May through August has been running about 34% below historical averages, while inflows have been roughly 44% below normal, according to the Club.

The Panama Canal Authority has progressively reduced the maximum allowable Neopanamax draft to 48 feet of Tropical Fresh Water and cut the number of available transit slots as it moves to conserve water.

The ACP earlier planned to lower the Neopanamax draft further to 47.5 feet on October 1, but postponed that cut this month after reviewing Gatun Lake levels and weather forecasts.

Daily capacity is also being reduced. Neopanamax slots were cut to nine per day beginning September 3, while Panamax capacity was set at 25 daily slots and is scheduled to fall to 23 on September 15.

The current situation remains considerably less severe than the historic 2023-2024 drought, when daily canal transits fell into the low 20s and draft limits dropped into the mid-40-foot range.

But the Swedish Club said the bigger issue is what happens if El Niño strengthens into 2027.

That concern is being amplified by disruptions elsewhere.

Normally, vessels facing delays or cargo restrictions at Panama could consider routing through the Suez Canal. But security conditions in the Red Sea and Gulf of Aden have sharply reduced the attractiveness of that option, while the conflict surrounding the Strait of Hormuz has pushed additional traffic toward Panama.

“The southern route is being considered today not because it has become attractive but because the other options have become harder,” the Club said.

That leaves the two passages around the southern tip of South America: the Drake Passage and Strait of Magellan.

Neither comes without significant tradeoffs.

The Drake Passage provides a more direct open-ocean route between the Atlantic and Pacific but exposes ships to some of the harshest weather conditions in commercial shipping, including heavy seas, violent vessel motions, slamming, cargo shift and machinery strain.

The Strait of Magellan provides more shelter but brings its own navigational challenges, including narrow channels, strong currents and restricted waters.

“Neither passage resembles a lock transit on a schedule,” the Swedish Club said, adding that both require a higher standard of voyage planning, weather routing and crew competence.

Pilotage can also become complicated. Pilotage through the Strait of Magellan is generally compulsory under Chilean regulations, although an exception applies between Bahía Félix and Punta Arenas for vessels making an ocean-to-ocean transit without navigating internal waters or calling at Chilean ports.

Even in that section, Chilean authorities strongly recommend using a pilot for certain vessels, including oil, gas and chemical tankers and passenger ships.

The Swedish Club warned that the voluntary nature of pilotage in that section can create charterparty disputes over who ultimately pays.

Where charterparty language assigns charterers responsibility only for compulsory pilotage, the cost of voluntarily taking a pilot could fall to owners. The Club said there is no settled rule governing the issue and recommended that owners and charterers agree on pilotage and routing costs before a vessel commits to the passage.

Cold-weather operations add another layer of risk. The Club highlighted bunker handling concerns aboard ships that are not designed for prolonged cold-weather operation, particularly where fuel heating systems may be inadequate.

Emergency response capability is also limited across southern Chile. A grounding or major machinery casualty in the region could leave a large vessel far from suitable salvage resources.

Ultimately, the Club said the choice of route remains a matter for the master, whose responsibility for the safety of the ship, crew and cargo cannot be displaced by charterers.

If the master determines the Drake Passage is unsafe and instead chooses the Strait of Magellan, the Club said that decision should be supported by weather forecasts, routing advice and detailed voyage records in case the decision is later challenged on cost or liability grounds.

For most vessels, the Swedish Club said the current Panama restrictions remain manageable and do not by themselves justify the additional risks of sailing around Cape Horn.

But that calculation could change if Canal restrictions deepen. “The southern route should remain reserved for the cases where Canal waiting times, draft driven cargo losses and the degraded state of the eastern alternatives genuinely tip the balance,” the Club said.

Panama Canal officials have been warning that the developing El Niño could bring an extended stretch of below-normal rainfall. Former Canal Administrator Ricaurte Vásquez told gCaptain in August that officials were preparing for the possibility of roughly eight months of unusually low precipitation.

Traffic has also remained elevated as disruptions elsewhere reshape vessel routing. Before the Iran War, the canal was handling roughly 34 ships per day. Traffic later climbed as high as 40 to 41 vessels per day as additional tonnage shifted toward Panama.