Implications of the Panama Canal Expansion for Shipping

Posted by PortVision

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A Panama Canal expansion launched in 2007 and originally planned for completion in October 2014 is now slated to open by the end of June, according to Reuters. The latest delays were caused by cracks and leaks in the new concrete walls. The final cost for the expansion may exceed $5.3 billion (US dollars). Panama will benefit from the expansion – the government predicts an additional $1.4 billion in revenue in 2017. The new channels will also affect worldwide shipping.Capacity of the canal has doubled allowing for the transit of vessels with a 160 foot beam, 1200 foot LOA and 50 foot drafts. 42 vessels per day will be accommodated (by 2020, it is expected that 51 vessels per day can complete the transit). The expansion is expected to have a major affect on trade routes in the future.

Post-Panamax vessels – supertankers and container ships capable of holding 18,000 TEUs – will be able to travel directly to the US East Coast from Asian ports. In anticipation of a major traffic boost, ports on the East Coast are currently investing billions to deepen harbors, raise bridges, and add infrastructure to deal with larger vessels and bigger cargo loads.

Congestion, labor costs and strict regulations in West Coast ports have long been problematic for shippers. As well, the extra costs of transshipping cargo will be scrutinized for cost savings. However, shippers have been using West Coast ports for quite a while, so it will take some time for new routes directly to the east to prove their efficacy. Institutional Investor indicated that the ports of Los Angeles and Long Beach brought in 14.6 million containers in 2013. That same year, the largest East Cost port, New York-New Jersey handled only 5.5 million containers.

The American Association of Port Authorities estimates that East Coast ports will spend at least $9 billion a year for these modernization and expansion needs. The ports of New York, New Jersey, Miami, Fort Lauderdale, Charleston, Baltimore, Norfolk, Hampton Roads, Savannah and Jacksonville are all moving forward with projects to handle the increased shipping activity. This, of course, includes loading the ships with US goods for the return trip.

A recent Institutional Investor article also emphasized the expectation that increased activity is expected in Gulf ports such as Houston and New Orleans.

Trips from Asia to eastern seaboard markets from the West Coast take 18 days (includes truck and train transport time). Utilizing the Panama Canal directly to the East Coast takes 22 days. Water transport is 50% cheaper than land transport so there are savings to be gained.

Change should be gradual as organizations look at specific costs and benefits to the new routes. It will take some analysis to justify leaving well-established routes. And there is the question mark of the opening date and operational efficiency of the new Panama canal channel to consider before movement to new ports takes place.

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Posted on May 3, 2016, 6:07:00 AM

Topics: News, Tankers, ports, Shipping