Panama Canal Expansion Update: When the “tipping point” becomes reality

Virtually every major global container port, ocean carrier, and lead logistics provider will feel some level of impact from the Panama Canal expansion. And according to many global freight transportation analysts, shippers should begin planning now to take advantage of this widely anticipated “tipping point.”

According to Peter Sand, chief shipping analyst for The Baltic and International Maritime Council in Copenhagen (BIMCO), the carriers with the newest “post-Panamax” vessels will rush them into new deployments due to the expansion. “The dimensions of the ‘ultra large’ container vessels are relevant in light of the carriers’ high focus on network optimization, especially for routes going to the U.S. East Coast,” he says. “The large inflow of post-Panamax ships exclusively into a low growth trading lane like Far East-to-Europe, has created an urgent need to deploy such tonnage onto other trades.”

And a number of prominent ports on the U.S. East Coast are getting ready for that anticipated new business.

In Savannah, Ga., the river is being deepened while the port of Charleston in neighboring South Carolina is also expanding. Further south, and as the port closest to the Panama Canal, the Port of Miami expects to be the most desired destination for the new generation of Panamax ships. The port’s Deep Dredge project aims to deepen Biscayne Bay to 50 feet from 42 feet.

Additionally, the Port of Miami’s Tunnel Project will offer trucks a more direct route to and from the port with a bypass of downtown Miami. The port is also considering a 4.4 mile rail link to the Hialeah intermodal rail yard. Furthermore, Miami has forged a deal with mega-carrier Maersk to handle more vessels in the coming years.

To date, the ports in Norfolk, Virginia, Baltimore and New York have channels with sufficient Post-Panamax depth. The Port Authority of New York and New Jersey, however, must complete their $1 billion project to raise the Bayonne Bridge by 65 feet before ultra large ships can pass underneath.

The largest ocean cargo gateway on the U.S. West Coast is hardly standing still, however. In an aggressive move to counter the efforts of East Coast rivals, it’s making major investments in its infrastructure.

“Adoption of a new budget allows the Port of Los Angeles to remain competitive, financially strong and self-sustaining, especially as we face increasing and intense competition from ports around the globe,” says the port’s executive director, Geraldine Knatz, Ph.D.

The Port of Los Angeles’ capital spending budget earmarks more than $380 million for container terminal and transportation upgrades, including more than $99 million at the TraPac container terminal for backland improvements to support future automation as well as construction of a facility to provide on-dock rail capabilities.

BNSF intermodal executive Fred Malesa maintains that since the ports of Los Angeles and Long Beach already regularly handle vessels of 8,000-TEU to 10,000-TEU capacity, carriers beginning to deploy 15,000-TEU to 18,000-TEU ships in their Asia-Europe services will continue to make direct calls there.

“Following the expansion, West Coast ports will continue to have a significant transit time advantage when serving the nation’s interior by rail and intermodal,” says Malesa.

Latin America angle
Other industry analysts say that any cargo lost by West Coast ports as a consequence of direct East Coast vessel calls will be offset by the burgeoning business forecasted for the north-south trade with Latin America.

Dr. Walter Kemmsies, chief economist at coastal and civil engineering firm Moffatt and Nichols, says that new opportunities will open between the U.S. West Coast and the East Coast of South America.

“Brazil remains a vital emerging nation,” says Kemmsies, “and demand for U.S. raw materials and finished goods will only increase. In the meantime, West Coast and Midwest shippers can gain a whole new way to access this marketplace after the expansion using ports on our own Pacific Rim.”

A recent study commissioned by Lilly & Associates International, a global freight forwarder based in Miami, shows that Panama’s Colon Free Trade Zone (CFZ) will soon become a major logistical hub for the region due to the expansion.

Researchers point out that CFZ imports and exports grew by 56 percent between 2008 and 2011, an astonishing figure amid a world-wide recession and continued lagging growth in the world’s largest economy. This growth will likely be accelerated when the expansion is complete and the CFZ upgrades are finalized, including an international airport.

“The emerging middle class in Latin America and globalized trade markets place Panama and the CFZ at a strategic crossroads,” says Nelson Cabrera, manager of business development at Lilly. He adds that with relative political and economic stability, Panama is an appealing way station for multinational companies looking to access emerging markets at low risk. And while political and economic challenges are cause for concern, they’re not overriding ones says Cabrera, as Panama outperforms its regional peers in both stability and growth.

“Panama’s infrastructure improvements and adherence to international norms under trade agreements position the CFZ as a dynamic center for Latin American and Caribbean trade in the coming decades,” adds Cabrera.

Meanwhile, a long talked about alternative to the Panama Canal moved one step closer last month, report analysts for IHS Global Insights. The Nicaraguan government proposed legislation that will give a 50-year concession for the construction and operation of a new canal connecting the Atlantic and Pacific oceans to a Chinese operator.

Should the Chinese operator succeed in raising sufficient finance to develop the project, it will profoundly alter operational conditions in Nicaragua, reshape global trade patterns, and shift regional relations. Of several proposed alternatives to the Panama Canal, this proposal seems the most likely yet to get off the ground, say analysts, partly because of the Nicaraguan government’s dominance of the domestic scenario and partly because of the clear long-term commercial benefits for a host of different actors.

Steady progress
Lending more urgency to the issue is the fact that the expansion is right on schedule, says Alberto Aleman Zubieta, CEO of the Panama Canal Authority (ACP).

“The new locks, which are currently under construction, will expand the Canal’s ability to handle ships nearly three times the size of current ships—an estimated 14,000 containers versus 5,000 container capacity today—and double the throughput capacity of the Canal,” says Zubieta.

Most importantly, dredging of the navigational channels has been completed. This included both canal entrances, on the Pacific and Atlantic sides, as well as Gaillard Cut. The remaining dredging work to be done in Gatun Lake is expected to be complete this year.

Meanwhile, the excavations of the Pacific lock access channel are 70 percent complete. This project calls for the excavation of more than 50 million cubic meters of materials along a six-mile span and is executed in four phases. Three of the four phases have been completed, and the fourth phase is 69 percent complete.

In another meaningful development, the ACP recently implemented the just-in-time service (JIT) that will allow vessels to have a more efficient transit. Panama Canal Administrator Jorge Quijano says that the new service will allow the vessels to arrive at the canal much closer to their scheduled transit time.

“This value-added service will allow vessels to maintain more efficient fuel usage by having to remain at anchor for less time before actually beginning transit,” adds Quijano.