China Cuts Detentions of Panama-Flagged Ships After Talks

The number of Panama-flagged ships detained in Chinese ports has dropped significantly following discussions between Beijing and Panama City, easing pressure on shipowners caught up in a maritime dispute tied to the operation of two Panama Canal terminals.

Panamanian officials reported that Chinese authorities detained 16 vessels flying the country’s flag during July, a sharp decline from the 140 detentions recorded in May. This month, only 10% of inspections resulted in a detention, compared with 37% at the peak of the enforcement campaign.

The improvement comes after a challenging first half of the year. According to Asia-Pacific port state control data, almost 500 Panama-flagged vessels have been detained in China since January. Between March and June alone, there were 431 detentions, more than four times the number recorded during the same period last year.

The increase in inspections followed Panama’s decision to remove CK Hutchison’s subsidiary, Panama Ports Company, from operating the Balboa and Cristóbal terminals at opposite ends of the Panama Canal.

After Panama’s Supreme Court declared the terminal concessions unconstitutional, APM Terminals and MSC’s Terminal Investment Limited were appointed as interim operators. CK Hutchison has since launched arbitration proceedings seeking more than $2 billion in compensation.

Chinese authorities have maintained that the detentions were solely the result of safety-related deficiencies identified during inspections. However, the U.S. Federal Maritime Commission has taken a different position, describing the inspections as the “weaponisation” of port state control and warning they could interfere with U.S. trade while setting a troubling international precedent.

The dispute has also had wider commercial implications. Hundreds of vessels are believed to have transferred out of the Panama registry during the period, while shipowners with regular trade routes to China have been forced to consider whether the cost of reflagging outweighs the possibility of continued inspections.

Following recent negotiations, officials from China and Panama have reached an agreement in principle to renew their maritime transport agreement, which grants Panama-flagged ships preferential port treatment and simplified operating procedures at Chinese ports.