Panamanian Scramble: American ports vie for future benefits

The Panama Canal is still at least two years from opening its new set of locks but for years now those very locks have been the cause of much commotion and consternation among ports along the Atlantic, Gulf of Mexico and in the Caribbean. It seems every decent-sized port is now scrambling to get a piece of the action – many of them making big bets with little or no assurance of long-term payoff, according to some analysts.

At the same time, many U.S. East Coast ports have been long-neglected and are badly in need of infrastructure upgrades to accommodate for international shipping’s scaled-up ships. Currently, four of the five U.S. ports capable of handling the larger vessels are located on the West Coast, with the Ports of Los Angeles and Long Beach alone receiving about 40 per cent of the nation’s cargo traffic. The Port of Norfolk, Virginia, is the only East Coast port that’s currently ready.

By the time the canal opens in the summer of 2015 and allows for containerships with 160 per cent more cargo capacity – called post-Panamax – to easily pass between the Atlantic and Pacific Oceans, four ports on the East Coast are expected to be ready to receive them, along with one in the Caribbean, according to reports. Baltimore, Miami and New York are all expected to be ready by 2015, and The Bahamas boasts that Grand Bahama Island’s Freeport Container Port can already accommodate the larger vessels.

However, many more ports are throwing their hats into the proverbial ring. Ports all along the East and Gulf Coasts are making hasty last-minute preparations. And a number of smaller island-nations are betting big hoping to become international transshipment hubs on par with Singapore or Dubai. Jamaica is dredging the Kingston Harbour, along with investing in other infrastructure improvements. Colombia is performing similar work to its port in Cartageña. Even Cuba has talked up plans to reap some of the benefits, despite the longstanding trade embargo with the U.S.

Unfortunately, exactly how the Panama Canal’s expansion will change shipping is far from certain. Everyone inherently talks up the scenario that’s most beneficial for them without giving much weight to opposing arguments.

East Coast ports are certain the post-Panamax ships will traverse the canal and call on them directly. Meanwhile, West Coast ports – worried over lost traffic that enters via their ports and is then shipped by train or truck to the East Coast – are putting out fires and saying hardly anything will change, that East Coast ports are inflating the numbers.

It’s this inter-port rivalry that could ultimately hurt some ports and deteriorate their profitability, according to K.C. Conway, the chief economist with Colliers International, which analyses international shipping. “The system comes into risk when nodes compete in destructive ways,” Conway said in a report published by Colliers on the subject. “It’s as though a person’s arm were to fight their leg for supremacy of the body: even if one succeeds over the other, the entire body is worse off.”

At this point, maybe the only thing that is clear is that global shipping is going to change once the new locks open in Panama. And yachting will be affected along with it. Whether it’s the increased size of commercial vessels, the increased flow of commercial traffic through the Gulf, Caribbean and East Coasts, or the increased fees that come along with the substantial investment on the canal; yachting will certainly suffer some unintended consequences due to this shift in global logistics.

A new canal, a new ship

The 48-mile Panama Canal is 99 years old. It will reach its centennial with essentially the same capacity it had in its infancy. Due to the rise in elevation, the canal was constructed using a series of locks on each side of Gatun Lake – two sets of three to the east and just as many to the west, allowing for two-way traffic. They raise ships up the 85 ft to the lake.

The French tried to construct the canal at sea level in the 1880s. When the rainy season arrived, mudslides quickly filled in just about everything that had been excavated. 

The canal’s current locks are 33.5m (110 ft) wide, 320m (1,050 ft) long, with a depth of 12.5m (41.2 ft). These dimensions have limited the size of so-called Panamax ships to a maximum beam of 32.3m (106 ft), a length of 289.5m (950 ft), and a draft of 12m (39.5 ft).

But naval architects have paid close attention to the dimensions of the new locks, which are about halfway done, as of this writing. The new locks will be 55m (180 ft) wide, 427m (1,400 ft) long, with a depth of 18.3m (60 ft). And so the post-Panamax ships will be able to have a maximum beam of 49m (160.7 ft), a length of 366m (1,200 ft), and a draft of 15.2m (49.9 ft).

But more important and more telling than the specific dimensions is the increased carrying capacity of these post-Panamax ships, which is measured using standard cargo containers: the twenty-foot equivalent unit (TEU). While the Panamax ships could carry a maximum of about 5,000 TEUs, the post-Panamax ships will be able to carry closer to 13,000 TEUs.

These cargo limits have led some operators, including the world’s biggest container shipping company, Maersk Line, to abandon the Panama Canal. Bloomberg reported that Maersk decided it would be more cost-effective to send one ship carrying 9,000 TEUs through the Suez Canal than to send two ships carrying 4,500 TEUs through the Panama Canal to reach the U.S. East Coast.

“The economics are much, much better via the Suez Canal simply because you have half the number of ships,” the company’s CEO, Soeren Skou, told Bloomberg.

And while the canal cuts more than 7,500 nautical miles (8,600 miles) from the route between the East Coast and Asia when going the Panama route, Skou said that the Suez route is only about 5 per cent longer – the difference between 12,000 miles and 11,000 miles.

By comparison, the Suez Canal allows ships with a beam of up to 50m (164 ft) and a draft of up to 20.1m (66 ft). It has no length restrictions. And while, at the moment, the Panama Canal benefits from more political stability than does the Suez Canal – with Egypt and particularly Port Said being hotbeds of unrest and violence – Maersk still made the decision to abandon Panama. One analyst said this could very well become a trend in international shipping.

However, the changed route will mean little unless there are enough ports ready to receive the post-Panamax ships – of which, only Newark and Freeport currently can. According to Colliers, ports are only considered post-Panamax ready when they’ve met three key criteria: channel depths of 15m (50 ft) with sufficient width and turning basin; cranes capable of loading and unloading the larger vessels; and docks engineered to handle the new, bigger cranes.

Obviously, Maersk has done its homework. But the fact remains that there is currently limited capacity for post-Panamax ships along the East Coast of the Americas.

“One reason for why this is happening now is that the cost for going through the Panama Canal has gone up,” Skou told Bloomberg. “At the end of the day, it comes down to cost.”

Maersk hasn’t decided if it will return to Panama once the new locks are completed. Skou said it will depend on economics.

Increased fees

Aside from the potential for an increased volume of ships through the canal – which could mean longer wait times and added congestion – yachts will also experience larger fees. The Panama Canal Authority (ACP) recently raised fees across the board, and plans to do so again on 1 October 2013.

In justification, the authority has cited a lapse of 14 years in raising the fee for the small vessel toll, which affects yachts. But the $5.25 billion (£3.4 billion) project was undertaken in late 2007, just before the global financial crisis ensnared most of the world’s leading economies. Up to that point, the canal’s traffic had been steadily increasing over the decade to a high of 13,233 transits in 2007. Since then, the canal’s transits have fallen off. In 2010, there were 12,591 transits, according to the ACP’s data.

Whatever the cause, rates have gone up and they’re expected to continue to do so. This past year, the transit fee for small vessels went up – from $500 to $800 for yachts under 15m (50 ft); from $750 to $1,300 for yachts between 15m (51 ft) and 24m (80 ft); from $1,000 to $2,000 for yachts between 24m (81 ft) and 30m (100 ft); and from $1,500 to $3,200 for yachts larger than 30m.

Container ships are no better off, as the fees to transit the Panama Canal have tripled over the past five years to around $450,000 (£293,000) for a vessel carrying 4,500 TEUs. Meanwhile, for that same vessel to transit the Suez, the cost is around $260,000 (£169,000).

Who will benefit?

It’s not clear just how much Panama will benefit from the canal’s expansion, given that no one knows just how much it will increase traffic. At the moment, the Suez has nearly twice the number of container ships passing through the canal annually – about 6,300 compared with Panama’s 3,300, according to Bloomberg. And it can be easily deduced that a portion of those ships are post-Panamax, which means they’re carrying more cargo than is possible through Panama and paying larger fees than Panamax vessels.

The shipping industry is increasingly moving in that direction. According to the U.S. Army Corps of Engineers, post-Panamax ships currently make up about 16 per cent of the container fleet, but account for 45 per cent of its capacity. Those numbers are estimated to grow significantly in the next 20 years, to the point that they are expected to make up around 62 per cent of container ship capacity by 2030. 

Panama will have to stay competitive with the Suez Canal in order to remain a viable and desirable option for international shipping. This means a transit fee that doesn’t turn companies like Maersk off. It can’t price itself out of the market. To a large degree, this is contingent on the price of fuel: because as fuel becomes more expensive, the shortest possible distance from Asia – through Panama – becomes more attractive.

So, really, it’s the shipping companies that are ultimately best situated to benefit. With multiple options, the shipping companies have the canals competing for their business. In a similar way, many of the ports in the region are doing the same.

Betting big, but what are the odds?

Around 70 per cent of America’s imports and 75 per cent of its exports go through its ports, according to The Economist. At the moment, about 40 per cent of that comes in through two West Coast ports – easily the biggest in the United States, though not even close to the largest worldwide.

The Economist highlighted a canal lock which connects the Mississippi River to the Gulf Intracoastal Waterway. The lock was built in 1921 and is half the length of a modern lock. Its replacement was authorized in 1956, construction authorized in 1998; and yet it has still not been replaced.

In short: America’s maritime infrastructure has been badly neglected and needs to be substantially upgraded.

While severely delayed, U.S. President Barack Obama approved plans last year to do just that and it is beginning to happen.

In August, the Port of Baltimore installed four cranes worth $40 million (£26 million) that rise 14 stories high to be able to load and unload post-Panamax ships. The Port Authority of New York and New Jersey plans to raise the Bayonne Bridge by 64 feet at a cost of $1 billion (£652 million), and to deepen the channel. The Port of Savannah is attempting to deepen its shipping channel, but faces a federal lawsuit alleging environmental concerns. And in Miami, similar claims were made that dredging the port would significantly damage the Biscayne Bay and harm wildlife.

Many other ports in the U.S. are also planning similar upgrades and often facing similar obstacles. As The Economist noted in the example of the canal lock which was authorized for an upgrade more than 50 years ago: “A long and winding road runs between approval and completion. And approval does not necessarily come with funding.”

This is, perhaps, where ports in Jamaica, The Bahamas and Colombia could be trying to position themselves as attractive transshipment centres – nearby the U.S. but outside of its more stringent environmental and legal standards.

The Bahamas has already invested in its port at Freeport and found some success. A forum – The Bahamas International Investment and Business Forum – was hosted on Grand Bahama Island, with its fulcrum being the potential explosion after the canal’s expansion is completed. Bahamian Prime Minister Perry Christie told potential investors that they expected a significant boost to the maritime industry in Freeport once the canal is opened.

“There are many benefits for The Bahamas from this,” Christie is quoted as saying. “It is good news for the shipping industry. That expansion puts Freeport in a unique and advantageous position.”

Jamaica is also hoping to sell itself as being in that same unique and advantageous position. However it needs to invest between $8 and $10 billion (£5.2 or £6.5 billion) to get the port at Kingston where it needs to be for those dreams to be realised. The country already has a crippling amount of debt and, according to the World Bank, it’s seen little-to-no growth over the past 40 years. But the Jamaican government is promoting the project as a gamechanger that could bring 21,000 jobs and boost the island nation’s GDP by 17 per cent over the next decade.

“Proponents are presenting and packaging the project as a saviour that will literally transform life on the island,” wrote Kevin Edmons in a blog which is focused on the Caribbean for the North American Congress on Latin America.

If the canal does play out as hoped by the Caribbean nations, it could drastically change the region that is so popular to recreational boating and yachting.

However, Edmons wasn’t sure it would be so simple. “While remaining cautiously optimistic about the impacts such a project would have upon Jamaica, it would be important to remember how the Caribbean Basin Initiative of the 1980s was designed to turn the Caribbean into an archipelago resembling mini models of Taiwan and Singapore. It obviously didn’t work,” he wrote. “Despite Jamaica’s committed drive to construct the necessary facilities to serve as a logistics hub, it will be in competition with similar deep harbour projects in the Bahamas, the Dominican Republic, Costa Rica, Colombia and even Cuba. In addition, the American ports of Miami and Jacksonville are hoping to steal some of the Caribbean’s thunder. Thus while the upside is huge, it is not guaranteed by any means.”

That seems to be the message for just about everyone: Nothing is guaranteed. Nothing except the fact that the expansion project will certainly change the face of the maritime world along the Atlantic.

Photos provided courtesy of the Panama Canal Authority.

Watch the video below of a superyacht transiting the Panama Canal: