Panama Canal no quick-fix for traffic jam

Monday, December 12 2005 @ 01:22 PM UTC

Contributed by: Don Winner

The Panama Canal, while currently coping with the growth in tonnage and transits, is unlikely to be able to mitigate the continuing pressure on North American West Coast ports and rail infrastructure over the next 10 years, findings of a recent study by APL show. The APL-commissioned research by Drewry Shipping Consultants indicated that use of the Panama Canal climbed sharply last year as shippers moved to all-water services in response to congestion at U.S. West Coast ports and deteriorating performance of the trans-continental railroads. While the Panama Canal Authority is making improvements that will have the result of improving its capacity over the next several years, Drewry's projections showed that a 3% annual growth in vessel numbers would be enough to swallow the increased throughput by as early as 2008. APL Chief Executive Ron Widdows said, "The Panama Canal Authority is working hard to implement the current improvements. In spite of their efforts, which we appreciate, we do see some delays in transit developing during the peak shipping season."

"Unfortunately, given the high demand for more all-water container services from Asia to the U.S. East Coast, the improvements capable of being made in the near term will not suffice over the longer term, and will not be enough to materially take the pressure off the North American West Coast. Shippers who were pinning their hopes on all-water services to the East Coast as a significant relief valve will need to factor this into their supply chain planning," Widdows said.

Longer term, the picture is even more troubling. Noting the political and financial difficulties involved in a major expansion of the canal, the Drewry research concluded by saying that "while seemingly at least 10 years in the future, expansion of the Panama Canal will not of itself solve the potentially persistent capacity constraint."

In fact, eventual expansion of the canal may only transfer the choke point to the East Coast, unless action is taken to further develop the port and terminal facilities which do not currently have the capacity to efficiently handle the larger 8,000-10,000 TEU ships, according to the APL.

"As well as the onus being on the Panama Canal Authority to finalize and expedite its plans, the challenge of improving the flow of cargoes in and out of the U.S. also requires a coordinated approcah to investment and a shared urgency between the U.S. government, shippers and carriers to keep up the momentum on developing port and rail infrastructure on both the West and East Coast," Widdows said.

"While improving the flow of freight on the West Coast in general is important, a concentrated effort to improve the port/terminal/intermodal linkages over the Southern California gateway is critical to ensure that the flow of our customers' cargo does not face significantly greater problems in the future. The Drewry study reinforces for us all the importance of this given the inability of the canal to materially change, for a very long time, the dynamics which drive the majority of volumes over the West Coast," he said.

"While again of around five more daily transits of the Panama Canal after 2007, combined with the use of larger vessels may add extra capacity of 1.8 million TEUs, this pales by comparison with the shortfall of 6.5 million TEUs projected for the West Coast ports by 2010. The fact is that the Panama Canal is already stretched at peak times, they are doing what they can to maximize the flow, but there is clearly a limit to what can be done without a major expansion. Even under a moderate growth scenario, the situation will become more challenging beyond the next three years," Widdows said.

The APL-Drewry report highlights the growing importance of the Panama Canal to U.S. trade. Around 70% of the estimated US$$10 billion container trade passing through the canal each year is either destined to or coming from the U.S. Total container cargoes transiting through the canal alomst doubled from an estimated 2.76 million TEUs to 5.22 million TEUs between 1995 and 2003.

Vessels on the Panama route have been getting steadily larger, with average size tripling over the past 45 years and more than doubling in the past 15 years. Costs to shipping lines are also increasing significantly.

"Major expansion of the canal is still unclear in terms of cost and timing - at least a decade away and with an estimated cost of between US$5 billion and US$13 billion. When you also take into account the potential impact on flow during such a large scale development project, it shows the need for the shipping industry, the reailroads, ports and government to stay focused on addressing the bigger picture of transportation infrastructure, labor and productivity issues in the U.S. before they have a more serious and detrimental impact on trade and the economy," Widdows said.

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