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GLOBAL SUPPLY CHAIN NEWS: EXPANDED PANAMA CANAL REACHES FIRST ANNIVERSARY, HAVING EXPECTED IMPACT

2017-07-03 16:15:47

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GLOBAL SUPPLY CHAIN NEWS: EXPANDED PANAMA CANAL REACHES FIRST ANNIVERSARY, HAVING EXPECTED IMPACT

 

Majority of Ships Through the Canal have been 13,000-TEU or More in First Year of Operation, as Volumes Way Up

 

It was a year ago, on June 26, 2016, that the expanded Panama Canal opened for business, with the renamed Cosco Shipping Panama containership, with a nearly 9500-TEU capacity, making the inaugural voyage through the locks.

Prior to the $5.5 billion expansion program that involved widening of its locks by 70 feet and making them 18-feet deeper versus the original Canal, the 77-kilometer waterway linking the Pacific Ocean with the Atlantic was limited to vessels of only about 5,000 TEU. Many container ships using the Canal only were carrying 3-4,000 TEUs, in an era where megaships increasingly rule the trade.

Hence the expansion project, which was about a couple of years late and was subject to severe disputes with contractors in the last couple of years over costs and which slowed completion, but in the end the promise appears to have largely beeb achieved - with a major impact on global logistics flows now and over the next few years.

In short, the expanded Canal enables much larger ships - in the 13,000 TEU range - to reach ports on the US East Coast or South America without taking the longer route around and below Africa.

Since the opening, the Panama Canal Authority, which goes by the acronym ACP, more than 1,500 "neo-panamax" vessels (larger than the previous limits) have transited the canal, of which 51% were containerships of 13,000+ TEU capacity.

"The countless accomplishments set over the past year have surpassed even our own expectations for the project," said ACP administrator Jorge Quijano in a statement.

According to the ACP, 15 out of the 29 liner services that use the canal now deploy neo-panamax vessels, with the majority of these linking Asia with the US East Coast.

Not surprisingly, this is having a major impact on East Coast port volumes. The Jacksonville Port Authority, for example, says it had seen a 13% growth in Asian container shipments in its first half of fiscal year 2017 versus 2016.

Up to 10% of container traffic between the U.S. and Asia could shift to the East Coast by 2020, according to an analysis by C.H. Robinson and Boston Consulting Group. Some have estimated even larger shifts.

Containerships represent approximately 51.3% of traffic through the expanded Canal, followed by liquefied petroleum gas (LPG) and liquefied natural gas (LNG) carriers, which represent approximately 31.5% and 9.1%, respectively. Other segments such as bulk carriers, tankers, car carriers and passenger vessels have also transited the neo-panamax locks.

Panama Canal tonnage has increased by 22.2%, when comparing the 2016 and 2017 fiscal years. On average, 5.9 vessels transit the expanded Canal per day, surpassing original forecasts of two to three daily transits for the first year of operation.

The ACP also says the expanded Canal also supports Sustainability, with an estimated reduction of 17 million tons of CO2 during its first year of operation thanks to the shorter traveling distance and the larger cargo carrying capacity of the ships.

Various other Canal projects are underway or planned. That includes a roll-on roll-off (RoRo) terminal to serve as a center for the redistribution of vehicles, machinery and heavy equipment; a 1,200-hectares logistics park to further strengthen the logistics services in the region; an LNG terminal on the Atlantic side of the waterway to provide LNG bunkering and redistribution capabilities; and plans for a new container terminal - though interest in that project from leading terminal operators was weak earlier in the year.

While obviously beneficial for US East Coast ports, the opposite impact may be in store for West Coast ports, as shippers decide for an all-water route to the East Coast versus shipping containers on rail carriers to the East from West Coast terminals. However, that potential shift has not really much showed yet in the data, as East Coast ports scramble to improve their ability to handle larger ships, and shippers and carriers take time to alter longstanding routes.

The expected shift is also impacting plans by trucking companies, some of which are planning a shift in assets from the West Coast to the East Coast, and investment in lower cost regional tractors, say to haul a container from the Port of Savannah to Memphis, rather than cross country.