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Panama Canal Expansion: Factors Influencing the Potential Economic Impacts
on the U.S. Economy
Stephen Fitzroy
Economic Development Research Group, Inc.www.edrgroup.com
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Panama Canal Expansion: Key Economic Factors
Vessel Economics and Operations Suez Canal and US West Coast Competition Caribbean Transshipments Competition from Canadian and Mexican Ports Measures of US Port Capacity Changes in Landside Logistics US Energy and Export Policy What We Should Expect
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So, Where is the Panama Canal?
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Google Maps, April 2014
Panama Canal Volumes - 2012
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Northeast Asia-East Coast U.S.
East Coast U.S.-West Coast S. Ameerica
Europe-West Coast S. America
South America Intercoastal
East Coast U.S.-West Coast C. America
Europe-West Coast U.S./Canada
U.S. Intercoastal
East Coast S. America-West Coast U.S./Canada
East Coast U.S. Canada-Oceania
All Other Routes
0 10 20 30 40 50 60 70 80 90
Tonnes (millions)
Potential Impacts on US Infrastructure and Markets Lower Relative Costs for Containerized Cargo
Between Northeast Asia and US East Coast Major shifts of container volumes to US East Coast
Greater Export Opportunities for US Bulk Commodities Larger bulk vessels lower US costs
Increased US Container Port Capacity More surge capacity, more calls
More Demand for Landside Road, Rail and Distribution Center Capacity Move containers to inland markets
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Container Vessel Operations
Move to larger vessels (13,000 to 18,000TEUs) driven by operating costs and thin profit margins Savings can range from 40% to 60% per “slot”
compared to 5000 TEUs and under.
Cascading has already begin – moving larger vessels into current rotations
New Alliances (P3, G6, CKYH(E) and Chinese lines) forming quickly Members will consolidate loads on larger vessels Fewer calls, but larger volume discharges
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Container Vessel Economics
Vessel Operating Costs: Capital costs Manning (labor) Fuel use for main (HFO) and auxiliary (MDO) engines Stores and lubes Maintenance Port costs, insurance, etc.
Maximum Economic Vessel Calls Three to four after passing through canal
Discharge Rates – Number of TEUs Loaded/Unloaded Larger vessels (13k to 18k) discharge 8k to 10k per call
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Effects of Bunker Fuel Costs
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Source: Mercator International, Panama Canal Expansion Study, June 2012
Suez Canal and US West Coast Competition
Larger vessels (up to 18,000 TEUs) will begin calling of US West Coast ports this year. 13,000 TEU vessels will begin calling on NY and VA
Ports in 2014Q3 US East Coast will be served by Suez from Asia Railroad pricing margins for mini-land bridge operations
Pooling of cargoes by alliances will accelerate this trend
Operating cost will decline well before Panama Canal expansion is complete
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Canadian and Mexican Ports Competition
Canadian ports, especially on West Coast, have drawn a large share to US-bound Cargo Productivity and connections to US Midwest are keys
Mexican ports are emerging as low-cost alternatives Less congestion and strengthening rail links to Central
US markets
Emergence of manufacturing and “near-shoring in Mexico may combine with lower labor costs to stimulate shipment of intermediate goods through Mexico
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Caribbean Transshipments
Marine transshipment hubs function in several ways: Like the air hub and spoke system – allows for more
efficient operation of larger vessels based on smaller feeders
Vessel loads can be reconfigured while cargo is in transit – very important for logistics management
Costs for transfers are low relative to US ports Locations are directly on routes to/from Panama
Canal and US East Coast or Europe
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Location of Caribbean Transshipment Ports
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Mariel
Measures of US Port Capacity
Navigational Channel Depth/Vessel Capacity Only New York, Jacksonville and Houston exceeded
50% Berth Capacity
Charleston (47%) and Savannah (74%) exceeded 50% Crane/Lift Capacity
Savannah exceeded 50% Container Yard Capacity
New York, Virginia Ports, Miami and Houston exceeded 50%
Gate Capacity and Chassis Availability
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Source: Container Port Capacity Database, U.S. Army Corps of Engineers, 2010
Factors Affecting Cost Savings
Panama Canal Tolls
Transshipment Costs
Port Charges
Terminal Operator Costs
Rail Transportation Costs
Drayage and Chassis Management
“Net” Cost Savings Accruing to Shippers
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Changes in Landside Logistics More On-Dock Rail, Intermodal and Inland Port
Operations Supporting Major Container Ports Accommodate surge loads and expand market access Greater emphasis on value-added logistics services
Intensifying Use of Transload Facilities At or Near Ports Convert cargo from 40-foot international to 53-foot
domestic loads Accelerating Trend Towards both Larger and
Smaller Distribution Centers Larger DCs near ports to redirect imports Smaller regional DCs to handle same-day fulfillment
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US Energy and Export Policy
Trade Agreements Affect Volumes and Prices TPP (Trans-Pacific) TTIP (Trans-Atlantic) Bi-Lateral (Columbia, South Korea, Panama)
Commodities Most Likely Affected: Agriculture
Corn Soybeans
Energy LNG Natural Gas Liquids Coal
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What’s Should We Expect? Likely
Cascading to larger container vessels More rapidly than expected, but
not due to the Panama Canal More competitive US
Exports Driven by reduced costs for
deep draft bulk vessels and emerging LNG/Energy
More emphasis on logistics and supply chain innovations To handle container surges in
larger ports)
Unlikely Big savings for shippers
Most captured by TSPs Major Shifts of
Containerized Cargoes to US East Coast
Re-shoring of “traditional” manufacturing Near-shoring may shorten
supply chains for US Major highway
investments Alternatives – Rail/Barge
should be considered
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More Information
Contact: Stephen [email protected]
For a copy of this presentation and other EDR Group Presentations:
http://www.edrgroup.com/ited2014
To access the library of past EDR Group Papers, Projects and Presentations:
http://www.edrgroup.com/library
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