Wider Panama Canal may not be all plain sailing

Council chairman is not as sure as some insiders that HK and mainland shippers will reap such great benefits from the upgrade after 2014

PUBLISHED : Wednesday, 05 September, 2012, 12:00am
UPDATED : Wednesday, 05 September, 2012, 8:29am

The widened Panama Canal will definitely benefit the global shipping industry but industry insiders differ as to the benefits for Hong Kong and mainland Chinese shippers.

"The expansion is on schedule and will be completed by 2014, when the canal will be 100 years old. This is its first major modernisation project since its original construction," said Edwin Garcia, the director of the Economic and Commercial Office of Panama in Hong Kong.

"Five per cent of the world's trade goes through the canal. We want this to be higher.

"Until now, ships that were too wide have had to go down to the southern tip of South America to cross to the other ocean. With the expansion of the canal, these ships will save 8,000 miles of navigation and a lot in fuel and time."

The final bill for the expansion will be US$5.25 billion, according to the 2011 audit report of the Panama Canal expansion programme.

The crossing from China through the southern tip of Latin America to the US east coast takes more than a month. But passing through the Panama Canal would cut 10 days off the trip, Guotai Junan analyst Jason Song said.

Now, 35 to 42 vessels pass through the canal every day. "By 2014, the Panama Canal will double capacity with the new locks," Garcia said. "We're moving to bigger ships. The trend is to go to post-Panamax and super post-Panamax."

A Panamax is a ship that can pass through the canal, while a post-Panamax is too wide.

The canal's main constraint was its beam (width) limit of 32.2 metres, said Nick Brown, marine communications manager of Lloyd's Register.

After the expansion, this would increase to 49 metres.

Although large oil tankers, such as very large crude carriers, still will not be able to fit because they have beams of about 60 metres, the expansion will probably be accessible to most bulk carriers weighing less than 200,000 tonnes, according to Brown.

"The most significant impact is expected to be for the container trade," he said. "The main reason for the expansion was the increased volume of container traffic that will be able to use the canal.

"Today, most cargo destined for the US from Asia is delivered to the US west coast and onward by rail. This is time-consuming and costly. Bigger container ships will make delivery via the canal and up the US east coast more cost-effective."

He said more ships from Asia would be able to cross from the Pacific to the Atlantic Ocean to Europe and continue the voyage back to Asia. With existing Panamax limits, this round-the-world routing is not cost effective, but the canal expansion will make it economically viable.

"Hong Kong and Chinese exports will be offered more economic routes and greater flexibility in port options in the Americas and further afield," Brown said.

Added Garcia: "Where are the majority of the factories in the world? China. To reach other markets, the easiest way is to go through the Panama Canal. If you produce a product in China, you want the product to go to consumers fast."

But Willy Lin Sun-mo, the chairman of the Hong Kong Shippers' Council, said the benefits to local shippers would not be that great.

He said although bigger ships would be able to pass through the canal, the number would still be limited because of the limits of the lock system.

Lin estimated that Hong Kong and mainland shippers that did use the canal to reach the US east coast might save US$500 to US$600 per 40-foot equivalent units and save seven days of transport time.

"This may help China and Hong Kong exporters but the impact will not be very substantial and will depend on whether the shipments are time-sensitive," he said.

Nonetheless, having more ships pass through the canal would relieve the bottleneck on US west coast ports, Lin said.

Song said that in the short term the expansion would worsen the oversupply of global dry bulk shipping capacity. "There may be more idle time for ships, which is not good news for shippers," he said.

He said the overcapacity would extend into 2015. "In the long term, there will be benefits because it will take less time to make the trips."

Song said container shipping would benefit because of shorter travel times, which would lead to lower shipping costs. "But if the Panama Canal charges more because of the expansion, there may not be cost savings," he said.