Is the Panama Canal losing its position as the dominant route for East Coast importers of cargo from Asia? Will it be able to regain the services it has been losing to the Suez route when it’s finally able to open its large new locks to post-Panamax ships at the end of 2015?
Opinions are mixed, in large part because it depends on the comparative levels of tolls in effect at that time, but global economic changes already are eating into the Panama Canal’s position as a strategic waterway.
When the plan for the new third set of locks was introduced in 2004, it seemed certain the Panama Canal Authority’s $5.25 billion expansion project would give it a lock on the growth in all-water trade from Asia to U.S. East Coast ports. The new locks would be able to handle container ships with capacities of up to 13,000 20-foot-equivalent units, compared with the current limit of about 5,000 TEUs for Panamax ships.
In the years since, however, there has been a shift in global sourcing patterns to South and Southeast Asia and changing vessel economics that may channel more container trade from Asia through the Suez Canal to the east coast of North America than through Panama.
It hasn’t helped long-term planning that the opening of the new locks to commercial traffic has been delayed, first because of a faulty concrete mix and just last month by what the canal authority called “electro-mechanical” problems with the new lock gates. The opening of the new locks to commercial traffic will be pushed from mid-2015 until the fourth quarter of that year.
And the expanded locks won’t be able to handle the 16,000- to 18,400-TEU container ships now being delivered. The former canal administrator, Alberto Aleman Zubieta, the architect of the canal expansion, said last year that the canal would need to be expanded again to handle the new ultra-large container ships, and the canal authority is considering the possibility.
“The new locks will be a game-changer,” said Oscar Bazan, the canal authority’s marketing manager. “Once the new lane is open, we expect to recapture some of the volumes that have shifted to Suez.” He said U.S. trade with Northeast China will continue to grow, even if trade with Southeast Asia shifts to the Suez route.
Whatever the result, Panama will not have wasted its huge investment because the expansion is attracting new private investment in ocean terminals, logistics centers and regional business headquarters. “Panama is becoming the Singapore of Latin America,” said John Vickerman, president of maritime and port consultant Vickerman & Associates. “We will see large transshipment ports on the Pacific entrance of the Panama Canal, where an 18,000-TEU ship can come in and transship cargo for the region.”
The cost of another canal expansion is probably out of the canal authority’s economic reach, he said, but the country’s position as a logistics and transshipment hub will enable it to retain and regain some of its container traffic.
“The connectivity that Panama offers will enable us to gain new traffic from Latin America, where there is still room for containerization of products,” Bazan said. He said the planned new container terminal at Balboa on the Pacific side of the canal and new logistics zones will strengthen the all-water route. The canal intends to keep its tolls competitive with other routes, he said.
“Panama’s free trade zone is a natural transit point for all kinds of consumer goods and electronics that can be shipped into its free trade zone and transshipped or processed like in Singapore,” said Ed Sands, global logistics practice leader at consulting firm Procurian. But this doesn’t necessarily mean the canal will be able to attract more transits, because a growing volume of container trade will be channeled through the Suez Canal as production shifts to South Asia.
“China is no longer the low-cost supplier to the world, so some industries are not going to grow in China but in South Asia and a little bit in Mexico,” said Walter Kemmsies, chief economist for port engineering firm Moffatt & Nichol. Vietnam, Thailand, Indonesia and India are following the Chinese model of making massive investments in infrastructure for exports to Europe and North America, he said. “The liner companies can offer better services with bigger ships, and that makes the Suez Canal the more viable option.”
U.S. imports from South China and Southeast Asia that used to go through the Panama Canal are shifting to the Suez route. The development of port infrastructure in Southeast Asia is attracting direct calls by large post-Panamax ships. “Once this traffic shifts to the Suez route, it is unlikely to shift back to the Panama route because logistics habits are difficult to change,” Sands said.
U.S. East Coast ports are investing billions of dollars to deepen their harbors and develop new infrastructure to handle post-Panamax ships, no matter which route they ply. “We don’t care if they come from east or west,” said Bill Johnson, executive director of the Port of Miami, which is investing $2 billion in various infrastructure projects, including deepening its harbor to 50 feet. The port recently installed four new super-post-Panamax cranes, which it plans to use Nov. 30 when the 9,640-TEU Maersk Altair calls there, albeit not fully loaded. The Miami call is part of the carrier’s revamped TP7 service, which was rerouted this year away from the Panama route to the Suez route from North China.
No one should count China out. It will remain an important source for U.S. manufactured imports because of its modern port infrastructure and efficient logistics, but rising wage costs are driving the growth of near-sourcing to Mexico.
|Suez vs. Panama: A Canal Comparison|
In the last year, the large global ocean carriers that operate services from Asia to the east coast of North America have added more loops through the Suez Canal because the larger post-Panamax ships they can deploy on that route gives them lower slot costs than on the Panama route, where they are losing money.
“The economics of bringing vessels through the Suez passageway are much better,” said Gene Seroka, president of APL in the Americas. “APL as part of the G6 Alliance has shifted more services to Suez than to Panama.”
The G6 Alliance deploys more than 50 container ships on six joint services through the Panama and Suez canals.
The average slot cost on a 4,800-TEU ship traveling from Hong Kong to New York via Suez is $850 per TEU, while the cost on the same route via Panama is $1,250 per TEU. When the P3 Network among Maersk Line, Mediterranean Shipping Co. and CMA CGM launches its combined services next spring — assuming regulatory approval in the U.S., Europe and China — three of the four all-water services from Asia to the U.S. East Coast will deploy ships of 8,500 TEUs through the Suez Canal, while only one, the Everglades, will deploy ships of 4,500 TEUs through the Panama Canal.
U.S. importers have been slow to shift to the Suez route because it takes a day longer than the Panama route. But carriers are being aggressive in marketing their new Suez services. “We are promoting those services with every client we talk to,” Seroka said.
He said freight rates on the two routes are “pretty much the same” and set by the market. APL’s sales team also is talking to exporters about the Suez services. “It offers another choice to exporters here in the U.S. and Latin America because of frequency and gives them more flexibility.”
Although spot rates on the two routes are set by the market, lower slot costs on the Suez route enable carriers to offer much more favorable annual contract rates, which are likely to come into play in next year’s trans-Pacific contracts. “Cargo will flow downhill to where cost is the lowest and service is the best,” Vickerman said.