Forecasting Impact of Panama Canal Expansion

 

There have been numerous projections regarding the Panama Canal expansion’s impact on the shipping industry. The rosiest projections envision substantially greater volumes of container cargo entering the Gulf of Mexico and Caribbean trade.

The 15^th TOC Americas Conference, which takes place in Panama from October 13 to 15, will scrutinize the ability of ports to cope with these greater volumes and vessel sizes, and assess cargo flow patterns in the wake of Canal expansion.

Scaling up

The expanded Panama Canal is expected to open next April, allowing container vessels of up to 13,000 TEUs to transit. Currently, the canal can only accommodate 5,000 TEU vessels.

A recent analysis by Boston Consulting Group and C.H. Robinson suggests that up to ten percent of container traffic to the U.S. from East Asia could shift from West Coast to East Coast ports by 2020.

In 2014, about 35 percent of container traffic from East Asia to the U.S. arrived at East Coast ports. But according to the report, current growth trends push that share to 40 percent by 2020 even without the Canal’s expansion. The East Coast could see its share reach up to 50 percent following the canal’s opening.

West Coast ports will remain the destination of choice for shippers who need faster transportation to the U.S. heartland. But for less time-sensitive products, the savings of shipping through the Panama Canal could outweigh the extra transit time. This raises the possibility of a significantly changed logistics dynamic as shippers take a more segmented, nuanced approach to supply chain execution.

But it also raises questions about the ability of East Coast ports to absorb greater container volumes. Rerouting that amount of trade is equivalent to building a port roughly double the size of the current ports in Savannah and Charleston. While those and other East Coast ports have invested heavily in recent years to secure much of this projected growth, it is by no means certain that all will be well positioned to cope with a container ‘tsunami’.

Shipping network patterns in the wake of Canal expansion, alongside vessel size growth, alliances and other maritime trade fundamentals, will be one of the key topics for the first session of the TOC Americas Container Supply Chain conference.

Caribbean cruise?

Ports in the Caribbean and South America also stand to gain from the projected influx of traffic.

Latin America has already experienced some of the fastest growth in ship size recently and features heavily in the global list of ports on secondary deep sea routes that are now routinely handling 8-10,000 TEU vessels. For instance, the average ship size on the Asia-East Coast South America container trade route has grown 37 percent in the last two years.

However, the ability to absorb even greater container flows arising from the Panama Canal expansion poses many questions. While the standards of infrastructure in many parts of this region can be considered acceptable, sufficient maintenance of equipment and infrastructure has been lax at times. Additionally, principles of corporate governance, notably the impact of government interference, raises the question of whether these markets are equipped to harness the benefits of a more dynamic and competitive maritime economy.

Critical to forecasting the way forward for these regional ports is how future canal traffic might impact the morphology of regional shipping networks, transhippment hubs and feeder operations.

Two sessions of the TOC Americas Container Supply Conference are set to explore these impacts on Caribbean and Latin America trades.

Panama potential

Jorge Quijano, CEO, Panama Canal Authority (ACP), has been confirmed as a keynote speaker at the 15^th TOC Americas. The conference will also feature a Panama Market Briefing, assessing national port and maritime logistics investment to capitalize on Canal expansion and boost Panama’s role as a regional logistics hub.