Interview: New Panama Canal to Shift Trade Patterns

As the long-awaited inauguration of the Expanded Panama Canal approaches with less than a week left until the first commercial transit of a Neopanamax vessel, scheduled to take place on June 26, 2016, The Panama Canal Authority said that, to date, most of the gates have been tested and have achieved the performance requirements.

At the beginning of June, the Panama Canal’s contracted vessel, the 2011-built Neopanamax dry bulk carrier MN Baroque, started performing lockages through the expanded locks for testing and training purposes, scheduled to last for 30 days.

The lockages are expected to test the integration of the gates, their opening and closing capabilities as well as the valve opening and closing through the controls system.

WMN: How would you assess the interest in transiting the new locks now that the booking slots for Neopanamaxes are open?

De Ducreux: The interest in transiting the new locks can be assessed in terms of bookings and the expression of interest of the Panama Canal main shipping lines from all market segments. For the container segment, ship-owners have shown their interest, and are planning to deploy approximately six to seven Neopanamax services during the first months after the opening of the new locks. Currently, we have received over a hundred booking requests, mostly from container ships, for the new Panama Canal locks.

WMN: The Panama Canal Authority said that the new canal would offer four more slots per day for vessels in this initial operating period besides the 25 slots the current canal offers. As the authority is planning to increase this number in the future, when could we expect to see more slots open? How many additional vessels would be allowed to transit the expanded canal?

De Ducreux: We are being somewhat conservative regarding the number of booking slots being offered in the initial stages of the operation until we acquire enough experience regarding the operation of the expanded canal. Once we feel confident that we can handle a greater demand of transits, we will be increasing the number of booking slots. We are prepared to handle more than four Neopanamax vessels per day. The maximum will depend on vessel mix and transit restrictions. We expect that the initial demand for the new locks will be relatively low, but will gradually increase as our clients feel confident about the operation of the new canal. We expect to eventually reach our maximum capacity of approximately 12-13 transits per day. Additionally, depending on vessel mix and other variables, we expect to be able to handle between 35 and 38 vessels per day when considering both the Panamax and Neopanamax locks.

WMN: What will be the key impact of the expanded canal on the shipping industry and what shipping sectors/regions will be impacted the most and why? What are your key expectations?

De Ducreux: The expansion of the Panama Canal is already having an impact on the maritime industry, and it is expected to shift the trade patterns of entire nations. Shipping lines, port facilities, rails and distribution centers from different regions are getting ready to take advantage of the larger and more efficient ships. Shipping lines are getting bigger in their fleet composition and the canal expansion will allow them to deploy those larger vessels through the waterway. Furthermore, ports in the East and Gulf Coast of the United States, some of which serve vessels up to 9,000 TEU, are adapting their infrastructure to allow even larger ships to come ashore. Ports in the East and West Coasts of Central and South America are preparing to also increase their share of the commercial trade by taking advantage of the widening of the Panama Canal. In this sense, very large ships carrying coal from northeastern Colombia and iron ore from Brazil will be able to take the raw material to China through Panama at a lower price. Similarly, Chilean copper producers will find it easier to export to European markets. The liquefied natural gas (LNG) coming out of Trinidad and Tobago with destination Chile will be able to go through the expanded canal, saving hundreds of sea miles.

WMN: Can the expanded canal compete with the Suez or do we need a fourth set of locks that would allow passage of the 18,000 TEU+ vessels for a closer competition? Any concrete plans on the fourth set of locks?

De Ducreux: The Panama Canal recently implemented a new tolls structure specifically designed to attract containerships through our route. The Panama Canal route provides greater time and distance savings, among other competitive advantages, when compared to Suez, especially for shipments in the Northeast Asia-U.S. East Coast route.

At this time we don’t foresee the 18,000 TEU ships calling the East Coast ports, as they do not have the infrastructure to handle them at the moment. However, if the infrastructure limitations are solved and there is a possibility to capture additional demand due to the increases in vessel sizes, we may consider the construction of a fourth set of locks. We already have the path set for this new lane.

WMN: Low bunker prices have prompted the Suez Canal to offer 30% discounts to containerships sailing from the US East Coast back to Asia to make sure the canal is not avoided. Could we expect Panama Canal to do something similar to boost interest in the new locks?

De Ducreux: On April 1st, 2016, the Panama Canal implemented a pricing scheme, which for the first time, includes a customer-loyalty program for the container segment. The loyalty program’s aim is to encourage TEU capacity volumes in full container vessels transiting the Panama Canal by applying a preferential tariff system. The new tariff for the container vessel segment differentiates the vessel total TEU allowance (TTA) capacity tariff and the TEU loaded with the cargo tariff to be charged to full container vessels using the Neopanamax locks and/or the existing locks. The tariff per TEU to be charged for full container vessels depends on the loading factor of the vessels, defined as the amount of TEU loaded at the time of transit.

WMN: As the Panama Canal Authority rejected the ITF’s safety study into the new locks and the project as a whole, is the authority considering proving the study results wrong and if so, in what way? What would you say are the key findings you disagree with and are there any plans on discussing the safety issues with ITF?

De Ducreux: The ACP dismissed the ITF’s claims as they were not based on mathematical models and did not include data from physical navigation tests as was done in preparation for operations in the Expanded Canal. It therefore lacked scientific accuracy and credibility. In addition, the authors had not transited through the Panama Canal and are not trained to do so. The ACP spent nearly 10 years methodically and professionally evaluating and analyzing the design of the Expanded Panama Canal’s locks—a process which included conducting internal and external studies to determine how the new locks should operate. Furthermore, the ACP has greatly invested in upgrading its Center for Simulation, Research and Maritime Development as well as building a new Scale Model Maneuvering Training Facility to further train pilots and tugboat captains.

Image Courtesy: Panama Canal Authority