Panama sends officials to Beijing as 431 ships face China detentions

Hundreds of vessels have fled Panama's registry after China detained 431 ships in four months, escalating a dispute rooted in US pressure over canal ports.

Panamanian officials arrived in Beijing on July 16 for talks aimed at defusing a dispute that has driven hundreds of ships from the world's largest registry after China detained 431 Panamanian-flagged vessels in four months, four times the year-earlier total.

"The speed of the decline is a bit surprising given Panama's status as the world's second-largest and most widely accepted flag," said Jayendu Krishna, director and head at Drewry. "It is really just a matter of time before this whole issue will pop up again."

The exodus accelerated through the second quarter, with 281 ships leaving the registry in June alone, according to Lloyd's List Intelligence. The Panama-flagged fleet shrank 4.8% by gross tonnage in the first half, the steepest decline since records began in 2006. Chinese interests accounted for 70 of the vessels that departed in June, followed by Japanese owners with 20 and Singapore with 16.

The dispute threatens Panama's maritime revenue and could disrupt global supply chains if the US Federal Maritime Commission follows through on a threatened probe into China's detention campaign. The suspension of punitive port fees imposed by both Washington and Beijing on each other's vessels is set to expire in November, raising the risk of further escalation.

How the dispute escalated

The conflict traces to February, when Panama's Supreme Court invalidated concessions for two Panama Canal ports operated by a subsidiary of Hong Kong's CK Hutchison Holdings Ltd., transferring temporary control to Maersk and Mediterranean Shipping Co. after repeated US pressure. Beijing accused Panama of "bowing to hegemony" and subsequently ramped up port state control inspections of Panamanian-flagged ships, citing safety concerns.

China's Foreign Ministry said the detentions were to ensure maritime traffic safety and order, noting that while Panamanian-flagged ships accounted for only 20% of vessels in Chinese ports, they represented 50% of accidents and fatalities. In June, 25% of Panama-flagged ships inspected at Chinese ports were detained, far above the 5.9% monthly average recorded in 2025.

The Bahamas emerged as the top destination for reflagged vessels, taking 73 ships, followed by the Marshall Islands with 62. Many owners are shifting to flags perceived as more politically neutral because vessels calling at China — which controls more than half of global maritime freight — face heightened inspection risk under Panama's flag.

Tentative signs of de-escalation

Chinese detentions of Panama-flagged vessels fell 54% to 64 in June from 140 in May, according to Tokyo MOU data, a decline that coincided with Panama's announcement of the Beijing visit. US Federal Maritime Commission Chairperson Laura DiBella said on July 7 she remained concerned about China's "weaponisation of port state control inspections," warning the agency could launch a probe that may lead to remedial measures against Chinese-controlled carriers in US trades.

"Panama-flagged ships carry a meaningful share of US trade, and unwarranted, retaliatory vessel detentions could result in significant commercial and strategic consequences to US shipping," DiBella said.

Vespucci Maritime Chief Executive Lars Jensen warned that the FMC's threat could add fuel to an already volatile situation, noting that the expiration of suspended punitive port fees in November could trigger a new round of escalation if trade negotiations break down.

The bigger concern for Panama may come at year-end, when the Tokyo MOU reviews its flag state performance rankings based on full-year detention data. A wave of detentions at Chinese ports could see Panama slip from the white list to the grey list, further eroding the flag's attractiveness to shipowners and accelerating the reflagging trend.

This article is for informational purposes only and does not constitute investment advice.