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QUIJANO SAYS PANAMA CANAL EXPANSION NEARLY COMPLETE
February 23, 2015

Progress on the Panama Canal’s massive expansion project is nearly completed, Jorge L Quijano, chief executive officer of the Panama Canal Authority told attendees of the 47th Georgia Foreign Trade Conference in Brunswick, Georgia, saying that the expansion would be completed “hopefully by the end of this year or very shortly thereafter.”

Necessary dredging projects, including the Atlantic and Pacific entrances and lake-level channels, are complete, as is 85% of the excavation. The main locks are completed, he says, and 4.2 million cubic metres of the expansion’s total 4.4 million cubic metres of concrete have been poured.

The Panama Canal is responsible for 5.5% of the world’s container trade and 10.5% of the world’s grain trade, Quijano said at the conference, but has lost ground to the Suez Canal, which can handle more traffic and larger ships than Panama, and intermodal transport in the US in recent years.

Suez has seen its share of Asia-US East Coast traffic increase from 30% four years ago to 42% by late 2013, due both to its ability to handle larger ships and to accommodate a recent shift in manufacturing from China to more southerly countries including Vietnam, Cambodia and India, all of which are closer to the Suez route. The Egyptian government announced in August plans to nearly double Suez capacity by 2023 by building a new canal that will run parallel to the current canal.

Panama also faces competition from its Central America neighbour Nicaragua, where the government announced in July plans for its own canal between the Pacific Ocean and the Caribbean Sea. Construction of Nicaragua’s canal broke ground in December.

The expansion will double the Panama Canal’s capacity and allow it to handle 14,000 teu ships, compared to the less than-5,000 teu-sized ships it serves today. Quijano says the expansion will add to the competitive advantages the canal already holds: shipping containers from Shanghai to New York takes 26 days via Panama and 28 through Suez. The same shipment using intermodal trains from California to New York is about five days faster, but costs some $600 more per container.

Quijano says that projected international trade growth of 4.4% in 2015 will have a positive impact on the Panama Canal, including, in particular, increased imports by the United States of Asian goods. Recent statistics indicate that 69% of vessels transiting the canal are either coming from or going to a US port, followed by China, which accounts for 22% of canal traffic. Japan (9%) and South Korea (8.5%) are also significant customers of the canal, as are emerging Latin American economies such as Chile and Colombia. “Fifteen years ago, Latin America wasn’t even in the charts,” Quijano said.

Once completed, the expansion will allow the canal to offer lower prices for some shipments. “Economies of scale is the major product we’re selling,” Quijano said, including lower costs to shipping lines, which should translate to lower costs for importers and exporters and lower prices for consumers. “The expansion will definitely impact the supply chain.”

New pricing strategies in 2016 will see reduced prices for shipments of with empty containers; a new, lower base price; and a loyalty programme for shippers.

“We will reduce the amount of the base toll, and augment it for filled containers,” Quijano said, explaining that the strategy involves the canal taking on some of the risk when the market is performing poorly by letting shippers send empty containers through at a lower price.

The loyalty programme will provide larger benefits to larger vessels, he says. “Those who have stayed with the Panama Canal in difficult times and those who move in will quickly see an advantage.”

Brigadier General C David Turner, commander of the US Army Corps of Engineers’ South Atlantic Division, said important upgrades to the Port of Savannah, including the deepening of the harbour and waterways to 47 feet, will ensure that port can accommodate the larger ships which will transit the Panama Canal.

The US Army Corps of Engineers, which is responsible for protecting America’s water resources through its engineering and construction services, expects to see similar infrastructure investment in other US ports.

“In the US Southeast and Gulf Coast, there will be opportunities for economically-justified port expansion to be post-Panamax ready,” Turner said in his keynote address. Water resources infrastructure investment opportunities of US$3 billion or more exist in the United States, he said.

The Panama Canal expansion will open up a new avenue for freight to the move to the US East Coast, says Curtis J Foltz, executive director of the Georgia Ports Authority. “Savannah is hugely dependent on the Panama Canal, and is a natural first port of call on the Panama Canal lines,” he said at a press conference during the event. Foltz said that while some cargo has been siphoned off by the Suez Canal, he expects Panama’s expansion project to make it the canal of choice for routes between the US East Coast and Asian destinations from Hong Kong north.

But just because the Panama Canal and ports like Savannah can handle big ships doesn’t mean those ships will be calling anytime soon, say shipping line executives, who took part in a panel discussion following the two canal-related keynotes.

Allen Clifford, executive vice president of Mediterranean Shipping Lines, says he doesn’t expect to see the US East Coast receiving 12,000 teu ships anytime soon.

“There’s too much at stake, too many infrastructure issues, certainly just after the Panama Canal expansion is completed,” he said.

Michael J White, president of Maersk Line (North America) said that while the expansion projects are critical to bringing large ships to the US East Coast, there is a “long way to go” before those ships appear in the region. “If we use the time wisely, we can be prepared for the big ships, but we’re not ready today,” he said.

Draft is an issue in many US East Coast ports, said Marc Bourdon, president of CMA CGM America.

Clifford said that the need for infrastructure improvement has been a long-standing topic of discussion for industry observers. “How many times have you heard about the infrastructure changes needed. If [the federal government and state and local governments] don’t reach an agreement on infrastructure improvements, we’ll be sitting here in five years having the same discussion.”

 

By Gregory Glass

Managing Editor | Hong Kong

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