Prospects for new services are driving investment at East, Gulf Coast ports
by Bill Armbruster, blog anchor
East and Gulf Coast ports are investing billions of dollars in dredging and shoreside infrastructure so they will be able to handle the larger vessels that will be capable of transiting the Panama Canal once the expansion of the waterway is completed in 2015. Otherwise, ports fear they will not be able to compete, both with each other and with West Coast ports.
But will the benefits be as big as the ports anticipate? I’m sharing my views, but I also want to hear your opinions.
The canal expansion will make all-water services via the canal a more attractive option for carriers in the Asia-US trade. At present, the maximum capacity for container vessels transiting the canal is about 5,000 TEUs. After the expansion, it will increase to 12,500 TEUs, but the workhorses of the all-water services will probably be in the 6,000 to 8,000-TEU range. That will certainly improve the economies of scale for carriers because the higher revenue will far surpass the marginal cost increases.
Carriers may, however, find little if any savings due to the highly volatile additional fuel costs of all-water services as well as the costs of Panama tolls. Many shippers would welcome increases in all-water services because it would give more options, but I don’t think the potential cost savings for the carriers will translate into significant rate reductions. Rates are primarily based on supply and demand, not the costs for carriers.
While East and Gulf Coast ports may not gain as much new business from the canal’s expansion as all the hype over the past few years would suggest, the deeper channels and improved shoreside infrastructure will make them more attractive options for carriers offering Suez Canal services.
Some of the ports most likely to benefit from the Panama Canal’s expansion are in Central America, particularly Panama, according to John Martin, a port consultant. “The increased vessel traffic will give them a tremendous opportunity for transshipment as well as logistics operations,” he told me.
Panama’s four main ports handled 6.5 million TEUs in 2011, with transshipments accounting for about 85% of the throughput, according to a Georgia Tech study. Containers shipped from Asia, for example, could be unloaded at Balboa on the Pacific side and placed on vessels serving the west coast of South America. Similarly, they could pick up containers from other origins and head back to Asia, or they could sail through the canal with those additional containers. There are similar opportunities at ports on the Atlantic side of the canal. Cargo can also be shipped across Panama by rail. The Evergreen Group owns a big container terminal in Colon, which also has a big distribution center. Manzanillo and Cristobal, Panama’s other Atlantic ports, also stand to pick up business, as do ports in Colombia and Costa Rica, according to Martin.
Caribbean ports could also be big winners. Mediterranean Shipping Co. has a huge hub at Freeport in the Bahamas, which bills itself as the transshipment hub of the Americas. Kingston, Jamaica, also has great potential, though plans announced last August for CMA CGM to invest $100 million in exchange for a 35-year lease have stalled.
Now that I’ve had my say, I’d like to hear from you.
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected].
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.