Locking Through – New Challenges for Panama

With the transit last month of the “Cosco Pacific Panama” (9,472 TEU) through the new set of locks, Panama and the ocean carrier industry ushered in a new era in container shipping. Promises of expanded trade with mega vessels calling at U.S. East and Gulf Coast ports, terminals from Boston to Barbours Cut have been gearing up for the age of Neo-Panamax passage. While proponents point to the advantages of more containers transiting through Panama, there are growing concerns over the introduction of larger ships in the canal. Problems that plagued the Panama Canal Authority (PCA) during construction of the Cocoli locks put a financial strain on the operation. Cracks which appeared in the lock’s sidewalls were reinforced with rebar and patched last August but construction delays pushed back the opening by almost one year further adding to a loss in anticipated revenues. How the financial state of the canal will be affected by the burden it is already carrying remains to be seen but other factors could influence future revenues even further as bigger ships transit Panama. PGI, a London-based risk management firm, noted that Neo-Panamax vessels might be a tight fit for the new locks which measure 1,401 feet long and 181 feet wide. Take for example the MSC FABIOLA at 12,562 TEU; her length is 1,201 feet with a beam of 158 feet and she draws 50.85 ft of water. With only 11.5 feet on both sides, and tugs fore and aft to guide vessels of this size through, there is precious little room in the enclosed lock. A study conducted by the International Transport Workers Federation (ITF) noted that lock dimensions are too small for safe operations and there are no refuge areas for tugboats inside the locks. This leaves no room for human error, miscommunication, broken lines or engine failure. The study also noted that under windy conditions maneuverability in the locks would be severely compromised making accidents more likely due to the narrow dimensions. The long shore unions, which handle ships transiting the canal, are very concerned with these safety issues and the possibility of further damage to the locks. Will the canal be forced to reduce the speed of larger vessels in order to maximize safe passage? How will this affect ocean schedules going forward? Water levels in the canal required to sustain a safe draft may pose another problem under drought conditions. This spring the PCA announced new depth restrictions as water levels fell in lakes that form part of the waterway. Vessels seeking to transit the canal were required to adhere to a maximum draught of 39 feet beginning on April 18th. Depth restrictions forced by El Niño will put a strain on mega-shipping through Panama. Ships drawing more than 39 feet will be forced to lighten their load prior to entering the canal in order to meet the new maximum depth. This will reduce the overall profitability of the voyage causing ship owners to re-think the size of vessels, which they assign to that trade lane. In the end will the intended benefits of the expanded locks be fully utilized? What does this mean to cargo owners? With the higher volume of containers transiting the canal, the value of cargo transported on any particular vessel will increase significantly. This has prompted some risk managers to recommend higher insurance premiums for both vessel operator and the insured cargo owner. New safety measures, which might have to be implemented to accommodate larger ships, could have an adverse effect on the overall transit time of the voyage. If transit times increase for Trans-Pac East bound services, will the advantages of larger ships pay off in the long run? And will cargo owners continue to support these services? Ship owners may have to settle on a vessel size, which maximises the advantages of a larger ship but avoids the pitfalls of being too big. Ocean carriers have indicated that the workhorse of new Panama services will be 8,500 to 9,500 TEU class ships. Not too small, not too big, but just right!