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Opportunities and risks for the Panama Canal

The Panama Canal is bracing for the impact of the US-China tariff war, while finding new opportunities in the LNG industry.

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Delivering the key note address at the TOC Americas conference in Panama this week, Jorge Quijanao, Administrator and CEO at the Panama Canal Authority (ACP) highlighted the risks and opportunities facing the authority as it looks to capitalise on the massive investment in the Panama Canal expansion.

 

The new set of locks opened in 2016, and nearly thee years later Quijanao said the market segments the Canal serves “ have behaved differently than expected”. The container business has grown strongly, accounting for 159 million PC/UMS tons of the 442.1 million Panama Canal tons (PC/UMS) that passed through the canal in its 2018 fiscal year. Of that volume 112.6 million PC/UMS tons transited the expanded canal, which is in line with the ACP’s expectations. Bulk carrier traffic, however, was down 6% in 2018 mostly due to a decline in soya bean volume from the US, and Quijanao is not expecting US exports to stage a come back in the short term.

 

With 62.8% of total cargo transiting the Canal having its origin or destination in the United States the ACP is watching the tariff situation closely. On the container side, the threat of tariffs has actually boosted imports from China into the US. Exports, however, are a different story. US exports of agricultural products, scrap and recyclable materials to China have fallen significantly. As a result more containers are being sent back to China empty. Quijanao said the ACP has noted an increase in vessels taking the long route around Cape Horn to China, though this is not cost effective when oil gets above US$70 per barrel, he added.

 

One of the goals of the Canal expansion was to “recapture” some of the container business that was lost to the Suez Canal, and Quijanao said the expansion has seen “some, but not all of what is going through the Suez come back”. The Suez Canal, however, is discounting heavily to compete with Panama, with initial reductions of 35% increasing to 55%,and now 65%. “They are almost giving it away”, said Quijanao, adding that the ACP is not overly concerned as the Suez cannot replicate Panama’s position as a distribution point for the Americas.

 

The biggest surprise since the canal expansion opened is the growth in LNG traffic, which surged 81% in 2018 to 11.5 mt. Gas “has become a major business”, said Quijanao, and the ACP has needed to adapt to how it operates. Gas is frequently sold on the spot market, and the final customer is not known at loading. The ACP is now actively reaching out when it sees a vessel at a loading point in the US that does not have a Canal booking and offering the operator a slot.

 

Growing tonnage through the Canal is important, but the ACP and the Panama Maritime Authority are also pressing hard to expand the county’s ports and develop a role for Panama in added value logistics, for both container cargo and vehicles. Some 1200 hectares of land on the Pacific side of the Canal have been set aside for a Logistics Park, which the ACP wants to include a vehicle transhipment facility, and now LNG storage.

 

The ACP also believes it will need more box terminal capacity on the Pacific side of the Canal and has “repackaged” the Corozal terminal proposal. The concession has been scaled back from a three to a two berth terminal initially, which the ACP hopes will prove more attractive. The initial plan to develop a 5M TEU capacity terminal at Corozal was put on in 2017, after the four leading global terminal operators that prequalified for the original 20-year BOT concession failed to submit final bids by the deadline. Quijanao said the ACP has reached out to parties that were interested in the previous tender, as well as new players.

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