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Bigger Panama Canal Needs Lots Of Cargo

During the 1800s, traders did not have an efficient or quick way to ship goods between the Atlantic and Pacific coasts.

The British proposed a canal through Nicaragua but they did not build it. The French attempted to build a canal through Panama but abandoned the project due to fatal diseases. But Americans, despite the failures of others, were undeterred.

In 1914, the U.S. began building a canal in Panama. A century later the Panama Canal has been expanded to double the capacity it can handle. On June 26, the Expanded Panama Canal, completed at a cost of $5.4 billion, was inaugurated allowing more vessels to pass through.

The Panama Canal is an important link to global trade, accepting an estimated five percent of the world’s total cargo volume. It takes a ship about 8-10 hours to make its way through the canal. The canal serves over 140 maritime trade routes to over 80 countries. American ships use the canal the most, followed by China, Chile, Japan, Columbia and South Korea. Every vessel must pay a toll based on its size and cargo volume. Tolls for the largest ships can run as high as $450,000.

The opening, originally scheduled for 2014, to coincide with the centennial anniversary of the existing canal’s inauguration, comes at one of the most difficult financial times for the shipping industry. Shipping costs have plummeted as international trade falters, in part due to the economic slowdown in China and over capacity.

The expansion project is more than two years behind schedule and at least $1 billion over budget. Will the expanded canal bring the benefits it promised to this small Central American country amidst challenging global trade environment? There was euphoria as a crowd estimated at 25,000 gathered near the Agua Clara locks on the Atlantic side of the Canal on the inauguration day welcoming the first supersized vessel made its transit from one ocean to the other. However, serious questions were already raised about the feasibility of the Canal.

Besides this, there were also concerns about the design flaws in the canal expansion project. The expansion was criticised by members of the shipping industry, who said that the canal’s new lane was flawed and will put vessels at risk. Perhaps the biggest concerns have come from the pilots who will maneuver the huge so-called neo-Panamax ships through not only the new locks but also the soon-to-be more congested shipping lanes and what’s known as Corte Culebra – a narrow passage with many tight turns and sheer rock walls.

In less than a month of its opening there were three incidents of ships hitting the wall of the newly designed lane of the Panama Canal. Lycaste Peace was the first ship that had a collision in the canal. The ship is an LPG tanker that ripped a fender while passing through. Another vessel, the Cosco Shipping Panama, a container ship, also damaged its fenders. The Xin Fei Zhou, a Chinese container ship was the third one to hit the wall. However, officials from the Panama Canal Authority described these incidents as “normal”.

According to a study made by the International Transport Workers’ Federation, the dimensions of the new locks are too small for the size of the vessels. This meant that the margin of error was too small. The study was commissioned after concerns came from the federation’s members. Many workers in the shipping industry were questioning the canal’s safety. The Canal Authority dismissed the results of the study. Though accidents are common among shipping vessels, the incident with the three ships raised questions.

Ever since Panamanians voted overwhelmingly a decade ago to modernize the waterway that has been the path between the Atlantic and the Pacific since 1914, the expanded canal has been hailed as a game changer. However, the benefits of the expanded canal will be more gradual than immediate. The sluggish economy will continue to keep very little cargo on the move. Some of the key beneficiaries are PortMiami and other U.S. East and Gulf Coast ports. Only three East Coast ports, including PortMiami, are ready to handle fully loaded mega-ships – the so-called neo-Panamax ships that are the largest vessels that can pass through the revamped Panama Canal.

On July 9, Panama Canal and PortMiami renewed a Memorandum of Understanding (MoU) to promote trade opportunities and share best customer practices. The renewal of the MoU, which extends the 13 year-plus alliance enjoyed by both parties, demonstrates the value of the Panama Canal and its commitment to U.S. East Coast ports. It also coincides with a ceremony held by PortMiami to celebrate the arrival of the MOL Majesty, the first Miami-bound Neopanamax vessel to transit the expanded Canal.

In an interesting analogy, Josh Green, chief executive of Panjiva, a New York-based trade data company, compares the expanded canal to the arrival of the iPhone 6 Plus.

“The canal needed to stay competitive, but it’s hardly a game changer for world trade. In the same way that the original iPhone transformed the smartphone industry, the original canal radically changed world trade,” Green said.

The rationale for expansion is very simple – shippers will save money because neo-Panamax vessels can carry three times as much cargo as the ships that transit the old Panama Canal. That means fewer transits and more fuel savings. But to reach that potential there has to be lot of cargo. That is the biggest challenge right now.

According to reports, within a month of its opening the Expanded Panama Canal has welcomed 53 vessels, including 22 liquefied petroleum (LPG) vessels, 28 containerships and two vehicle carriers. And the number of reservations that the Canal has received thus far from various types of Neopanamax vessels is more than 229, and growing by the week. This increasing demand is further evidence of the maritime industry’s continued trust in the Expanded Canal and the impact it will have on the future of global maritime trade.

It was on July 25 that the first LNG tanker made its transit through the expanded Panama Canal’s Agua Clara Locks. Shell-chartered Maran Gas Apollonia-measuring 289 meters in length and 45 meters in beam-arrived from the Sabine Pass LNG Terminal on the U.S. Gulf Coast.

“The transit of the first LNG vessel through the new Panama Canal locks is a milestone in the waterway’s history,” said Panama Canal Administrator and CEO Jorge L Quijano. “LNG trade will greatly benefit from the expansion, and we look forward to welcoming even more LNG vessels through our great waterway. This transit marks the beginning of a new era that will result in cleaner and lower cost energy for the world.”

The expanded canal can accommodate 90 percent of the world’s LNG tankers, which will have a major impact on global LNG flows and offer numerous benefits to shippers.

For instance, with the U.S. poised to become one of the world’s top LNG exporters in the next five years, the Canal will allow vessels departing the U.S. East and Gulf Coast for Asia to enjoy significant reductions in voyage times (up to 22.8 days roundtrip), making U.S. gas deliveries to major Asian importers very competitive. Vessels departing the U.S. Gulf Coast for the West Coast of South America will similarly experience generous time savings.

In addition, LNG ships from the production plants in Trinidad and Tobago could head to Chile where LNG is regasified and distributed for energy-producing purposes. For this route, the Expanded Canal provides savings of 6.3 days in transit time compared to the Magellan Strait.

 

Source: The Stat Trade Times