Even as the big container transshipment ports in the Caribbean and Central America embark on ambitious expansion plans to handle the big new ships that will start coming through the Panama Canal after its new locks open in 2015, questions hang over the role the ports will play in global supply chains from Asia to the East Coast.
Will pure transshipment activities expand as a result of the canal expansion? Will the hubs also become new centers for logistics and even for assembly? The jury is still out, and will be for three more years. In the meantime, expert opinion differs.
Shipping lines currently use the container terminals in transshipment ports such as Freeport, Bahamas; Kingston, Jamaica; Caucedo, Dominican Republic; and Colon, Panama, to transfer containers from post-Panamax ships coming from Asia to smaller feeder ships that carry shipments to destinations throughout the Caribbean, South and Central America and to the U.S. East and Gulf coasts.
Most notably, Mediterranean Shipping Co. uses the Freeport Container Terminal to transship a significant amount of cargo bound to and from the U.S., and CMA CGM and Zim Integrated Shipping Services use the Kingston Container Terminal for the transshipment of cargoes to and from U.S. Gulf ports.
With the scheduled 2015 opening of the Panama Canal’s new locks, terminals in the Caribbean hubs either are planning to expand or have projects under way so they can handle calls by ships able to carry up to 13,000 20-foot-equivalent container units that may start calling at their hubs after 2015. Only a few ports on the East Coast — Miami, Norfolk, Baltimore and New York — and Houston on the Gulf Coast will have the water depth needed to handle the big new ships, so carriers will want to transship cargo to feeder ships that will carry it throughout region and up the East Coast.
In addition, carriers will want to keep their big ships at sea as long as possible. “The bigger the ships, the fewer the port calls the carriers will want to make,” said John Martin, principle of the port consultancy John Martin Associates. “They only make their money off the big ships when they are moving. They don’t make money when they are sitting in port, plus they have to pay a lot of port costs.”
That’s why many transshipment hubs are expanding. In this view, carriers will run the big ships as far as hubs in Panama or the Caribbean, drop their containers off for transshipment throughout the hemisphere, pick up any Asia-bound cargo that feeder ships have brought back to the hubs and then turn back to Asia.
In addition, Martin said, the growth of near-sourced production facilities in Mexico and Central America may further boost volumes transshipped through the hubs; feeder ships would carry near-sourced products for transshipment throughout the hemisphere.
On top of pure transshipment, carriers may see their cargo volume expand, because the Caribbean hubs may become focal points for more logistics staging and even light assembly and processing of parts or components brought in from Asia. The Colon Free Trade Zone at the Atlantic entrance to the Panama Canal is already a big logistics center.
The Panama Canal Authority may create a similar zone in areas of the west bank on deposits of excavated materials from the canal expansion program, and is considering developing other areas, including for some for final assembly, near the Pacific entrance that will enhance Panama’s position as a logistics center. Panama has already attracted investment in regional headquarters for Latin America by such multinational companies as Caterpillar and Procter & Gamble. But it has yet to become a light assembly center.
Martin said logistics zones are being planned around other Caribbean transshipment hubs, where some processing could be done, but declined to identify them because his consultancy is involved in their development.
“They will do subsidiary manufacturing or assemblage in those centers and hold the product there for distribution,” he said. “Now you’ll have pure DC operations in those places, to the extent that you can get the skilled labor.”
The availability of low-cost yet skilled labor, coupled with low real estate prices around the hubs would lead to this development as more shippers seek to lower their supply chain costs. Products assembled in these logistics hubs could be stuffed into 53-foot containers that could then be transported to any port in the U.S. for distribution “regardless of water depth,” Martin said.
The lure of developing these kinds of logistics and/or assembly activities around transshipment hubs is drawing interest from container lines that are already looking at the possibility of building new terminals, even in Haiti, where deep water and low-cost labor are the draw, Martin said.
Carriers are also looking at more activity in Caucedo.
Another reason for this activity is that carriers, which already transport much of the Caribbean islands’ imports of consumer goods from the U.S., would then be able to fill their ships with goods assembled at these new logistics centers for transport on the backhaul to the U.S.
All of this should support the growth of activity at Caribbean transshipment hubs, except for two things — the added cost and time it takes to transship cargo and the small size of the Caribbean markets.
The terminals in the Caribbean use existing technology to handle both domestic shipments and transshipments, said Asaf Ashar, research professor at the National Ports and Waterways Institute. Because transshipment cargo unloaded from an inbound ship has to be grounded at the terminal before being loaded on another ship for transshipment to the U.S. or another destination, it has to be handled twice, adding to cost and time.
“The cost of transshipment is high,” Ashar said, “and East Coast ports are already handling ships of up to 9,000 TEUs, so why do they need to add to cost by transshipping?”
He is also skeptical that the expansion of the Panama Canal would cause more cargo to shift from the West Coast to the East Coast. “The Panama Canal is not a game changer,” he said. “There will not be a big shift in the short term.”
As for the development of logistics and assembly zones in the Caribbean, “there isn’t enough volume from Asia to the Caribbean to justify calls there by the big ships,” said John Wheeler, vice president of carrier sales, South Carolina Ports Authority. “An 8,000-TEU ship isn’t going to fill up with Caribbean goods bound for the U.S. or Asia on the backhaul.” He said the only viable trade is the U.S. trade with Puerto Rico, from where smaller carriers such as Crowley and Tropical Shipping transship cargo for the smaller Caribbean markets.
U.S. companies such as HanesBrands and Gildan manufacture finished apparel for the U.S. market from textiles imported from Asia in plants in the Dominican Republics, but the volume is not sufficient to attract calls by large ships at Caucedo, Wheeler said. Most of the feeder ships that serve Caribbean markets are 1,200- to 1,500-TEU ships.
“The 8,000-TEU ships may stop at Colon or Balboa in Panama or at other Caribbean transshipment hubs where they will offload containers bound for the Caribbean or the east coast of South America, but then they will come up to the deep-water ports on the U.S. East Coast,” he said. “The Caribbean ports have been trying to make local processing work for years, but it just doesn’t work because the quality and the timeliness aren’t there. It’s like they invited everyone to the party, and nobody came.”