In the second of a three-part series, FreightWaves examines prospects for container ships transiting the Panama Canal. Part One featured the outlook for liquid bulk and Part Three will focus on dry bulk commodities, led by grains and coal.
The expanded locks of the Panama Canal, which debuted in June 2016, have been a boon for many shipping sectors, but they were specifically designed with container shipping in mind. “What we have seen, which is very important, is that the canal expansion program has been a success for the container segment,” affirmed Argelis Moreno de Ducreux, senior international trade specialist at the Panama Canal Authority (ACP).
The larger ‘Neopanamax’ locks, which recently celebrated their one-thousandth day in service, allow passage of container ships with a capacity of up to around 15,000 twenty-foot-equivalent units (TEU). The legacy ‘Panamax’ locks accommodate box ships of around 4,500 TEU.
Immediately after the Neopanamax locks opened, carriers deployed ships of around 8,000 TEU. After the air draft of New Jersey’s Bayonne Bridge was raised in 2017, allowing passage underneath of larger vessels, the average ship size rose to near 10,000 TEU.
Dividing line
Back when the new locks were under development, ACP business planners predicted that transits by much larger box ships would significantly reduce the per-unit costs of containers shipped to the U.S. East Coast from Asia, making this route more competitive with services from Asia to the ports of Los Angeles/Long Beach.
ACP planners described the United States as divided by a line running from north to south, roughly around the Ohio Valley. To the west of that line, it was cheaper for Asian cargo to be unloaded in California, then shipped eastward via intermodal to interior states. To the east of that line, it was more economical to use the Panama Canal to bring boxes to the East Coast, then use rail and/or trucking to bring cargoes westward.
When the canal allowed larger ships to transit with lower per-unit costs, the ACP envisioned this dividing line shifting to the west, bringing more of the U.S. population within the zone served by liner services using the canal – effectively stealing market share from Los Angeles/Long Beach.
De Ducreux maintained to FreightWaves that this theory has now been confirmed. “It has happened. We analyze the market share of volumes from Northeast Asia to the U.S. East Coast using the Panama Canal, to the West Coast and using the intermodal system, and coming through the Suez Canal. Since 2016, our share has increased from 43 percent to 48 percent, and the intermodal share has decreased from 27 percent to 20 percent.”
The caveat is that if the Panama Canal route is stealing market share, containerized cargo volumes transiting the waterway to the East Coast of the United States should be increasing at a higher rate than the overall U.S. container import trend. ACP statistics do not yet show clear evidence of this.
There have now been two full fiscal years since the expansion was complete (ACP fiscal years run from October 1 to September 30). Containerized volumes totaled 57.16 million long tons (1 long ton = 2,240 pounds) in FY2018, up 6.5 percent from FY2017. This is roughly in line with the national growth average.
According to the Port Tracker report, sponsored by the National Retail Federation, U.S. containerized imports rose 6.2 percent last year.
Cannibalization
What the ACP statistics clearly do show is a strong cannibalization effect, with the Neopanamax locks taking container-ship volumes from the Panamax locks. Containerized volume through the new locks totaled 40.95 million long tons in FY2018, up 19 percent, while volume through the old locks was 16.2 million long tons, down 16 percent.
“The average vessel size has been increasing dramatically since the opening of the new locks and I think this will continue”
The same trend is apparent in the first six months of FY2019 (through March). Total box cargo through both locks is up 7 percent, with Panamax volumes down 16 percent and Neopanamax volumes up 16 percent.
There are currently 12 container-line services still using the older Panamax locks; vessels on these routes have remained at their original size due to the water-depth restrictions at loading and/or unloading ports. There are now 16 liner services using the Neopanamax locks, including 12 connecting Asia with the East Coast of the U.S., two from the west coast of South America to Europe, one from the U.S. West Coast to Europe, and one from Asia to the Caribbean.
Service strings on the Asia-U.S. East Coast route have included vessels with capacities of over 14,800 TEU. “The shipping lines have been deploying bigger ships. The average vessel size has been increasing dramatically since the opening of the new locks and I think this will continue,” said De Ducreux, adding that the formation of container-line alliances is accelerating the trend, by allowing carriers to share services and maximize utilization aboard even larger vessels.
When asked about the impact of U.S.-China trade tensions on canal container-ship transits, de Ducreax said it has been a positive – so far.
“What we saw was an increased volume of loaded containers coming from Asia to the U.S. East Coast as part of a strategy of many shippers of bringing in more cargo before they came to a decision [on tariffs],” she said. If those tariffs are ultimately implemented, the consequences for the canal would turn negative.
