What's happening in Panama?
Time for an upgradeThe canal has lost considerable market share to alternate trade routes in years past, stemming from its outdated infrastructure incapable of accommodating modern shipping vessels. Namely, post-Panamax and super-post-Panamax ships that each have a carrying capacity of about 4,848 and 8,600 TEUs, respectively. This reality is in addition to a global logistics environment characterized by rising fuel costs, expedited time-to-market deliveries and the one goal shared by all shipping lines: maximizing service levels, while mitigating costs. As a result, trade routes are integral.
The canal’s existing configuration has caused heightened wait times that have forced carriers to bid for transit slots at auction. Upon completion, the third lane/locks will be able to accommodate post- and new-Panamax ships—far more fuel efficient than smaller, older vessels—to pass through and minimize old wait times. Larger economies of scale and speed equate to reduced shipping costs. Shipping lines that call on the passage will enjoy a cost savings of 7 to 17 percent if they switch to post-Panamax vessels, as estimated by the Panama Canal Authority (ACP).
Transshipment hub for the western hemisphereMoreover, due to its ideal location, Panama acts as a transshipment hub for smaller ports that lack the capacity and infrastructure required to handle larger vessels. Existing terminals would face serious capacity constraints if cargo throughput were to exponentially grow tomorrow. This is especially true on the Atlantic side. To cater to anticipated TEU volumes, the Panamanian government has encouraged new infrastructure projects at the terminals. One such development is the Panama Colon Container Port, which will have a 2.25 million TEU capacity upon build-out. With a slated completion date of the first quarter of 2015, Colon will become one of the top 12 transshipment terminals in the world and the second largest on the Atlantic side of the Panama Canal.
A temporary reprievePlans to revitalize the Panama Canal were first announced in 2006, with a scheduled completion date of 2014; this has since been revised to 2015. The expansion project aims to create a new third lane of traffic, which will allow the transit of longer and wider ships, and consists of deepening and widening canal entrances while constructing new lock sets on the Pacific and Atlantic sides. An additional undertaking involves the widening and deepening of existing navigational channels in Gatun Lake and the deepening of Culebra Cut. Most dredging has been completed, while significant work remains on building the locks themselves. Upon completion, the canal will be able to accommodate new-Panamax container vessels whose load capacity totals 12,600 TEUs.
Revitalization of the canal and its subsequent delay offers a temporary reprieve for several U.S. East Coast Seaports, many of which are racing to complete modernization projects of their own to become post-Panamax supply chain contenders as ships from, say, China, transit Panama. Many of these modernization projects are, in turn, running behind schedule as U.S. seaport competition only intensifies to vie for Panama-based traffic to come.
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