Panama denies report of Canal trouble
Dec 24, 2010 - Panamanian President Ricardo Martinelli says he had total confidence in the expansion of the critical Panama Canal, denying it was a "disaster," as a US ambassador said in a diplomatic cable released by WikiLeaks. His comments were the first government reaction to a leaked diplomatic cable in which then-US ambassador to Panama Barbara Stephenson described the vice president's deep concerns over the project. According to the memo, Vice President and Foreign Minister Juan Carlos Varela told the US representative: "The canal expansion project is a disaster." (AFP)
Background and Implications
The Panama Canal expansion will significantly impact shipping companies and shipyards, American ports, railroads and trucking companies, and virtually every manufacturing company. The expansion will double the capacity of the Panama Canal by increasing throughput and allowing bigger ships to pass - "New Panamax" ships will be 366 X 49 X 15.2 meters, up significantly from the "Panamax" dimensions of 294 X 31 X 12 meters. Post-Panamax ships coming from Asia will be able to bypass the West Coast and sail directly to to the Eastern seaboard. Currently, containership services between Asia and the U.S. West Coast is the preferred route accounting for ~75% of Asian imports. The Asia-Panama Canal-U.S. East Coast route accounted for ~19% of Asian imports. The question is once the expansion is completed, how much more Asian imports that will utilize East Coast ports via the Panama Canal. It is a trade off between cost and time- the all water route to the East Coast is cheaper but longer (e.g. water freight from Hong Kong to York: $1,560 and 21.6 days. Hong Kong to New York via Los Angeles and then rail: $1,800; 18.3 days). Additionally, given all water freight is more fuel efficient than rail, increasing energy prices will favor the former.
- Ports: Los Angeles and Long Beach ports will lose out on business, despite effort to modernize their operations. East coast ports that are able to handle New Panamax vessels will win significant business. Currently, Charleston, SC and Norfolk, VA are best positioned but Savannah, GA is expanding its fast-growing port to accommodate the larger vessels by 2014.
- Shipping Companies and Shipyards: With the glut of orders from 2007 leading to oversupply for large ships, shipyards had been expecting modest orders for years to come. However, they are receiving unexpectedly high number of requests for the post-Panamax vessels, as the improved economic outlook rekindles desire take advantage of the Panama Canal expansion
- Railroads and trucks: shipping a New Panamax ship directly to the Eastern Seaboard followed by a short haul by truck or rail will be significantly cheaper than shipping to the West Coast followed by a cross country rail. Railroads dependent on west to east traffic will struggle to maintain that business.
- Manufacturing Companies: the increasing capacity is a broadly positive development for importers and exporters of goods. However, companies should be careful not to be caught by surprise when routes get cancelled or prices increase. The biggest beneficiaries will be Eastern, Southern, and Midwestern companies that anticipate the new optimal routes and partnerships.
Other Recent News and Information
Savannah's Port - Why digging in Panama is bringing out the shovels on America’s east coast: The Georgia Ports Authority (GPA) wants to dig out Savannah’s shipping channel even further, to 48 feet, in order to attract the larger vessels expected to call on east-coast ports once the expanded Panama Canal opens in 2014. (The Economist. Sep 2 2010)
Shipyards plan superlong vessels for Panama Canal: Daewoo Shipbuilding & Marine Engineering Co. had been gearing up for an order book of average-size vessels for next year. Instead, the company got more and more queries about building ships that are longer than the 1,063-foot-long Eiffel Tower. (Bloomberg Dec 12 2010)