Panama Canal may take ring side seat to competitor Suez Canal
Although media outlets have focused heavily on the projected opening of the expanded Panama Canal, big news happened on August 6 with the official opening of the new $4.1 billion expanded Suez Canal. Egyptian President Abdel Fattah el-Sisi dubbed the event: “Egypt’s gift to the world.” Opening with a pageant of soaring jets and singing schoolgirls that lasted hours and a host of cargo ships sailing toward the sea, this “Axis Canal” is, in fact, a 72-kilometer expansion alongside the original Suez Canal, a length that totals one-third the length of the existing 163 kilometer waterway. While this news may seem to take some wind out of the sails of anticipation surrounding the Panama Canal, its implications are immense. Originally, the Suez Canal expansion was planned to take three years. But President Sisi ordered that the canal be dug faster due to Egypt’s urgent economic situation. Compared to the nine years it is taking to expand the Panama Canal, the Suez Canal expansion occurred in a record 11 months. In all fairness, however, the Panama Canal expansion is larger and much more complicated. It involves adding a third lane through the construction of lock complexes at each end of the canal. It will double the Panama Canal’s capacity. Despite the economic development President Sisi claims the Suez Canal expansion will bring to his country (industrial sites, warehousing and distribution along its banks), its biggest benefit is the Canal facilitates two-way traffic. Prior to the expansion, the original 163 kilometer Canal was too narrow for large ships to cross both directions. Advantageous Route With the exception of the Arab-Israeli Wars in 1967 and 1973, shipping lines have long benefited from the Suez Canal. It offers a shorter route to the other option of going around South Africa’s Cape of Good Hope. This shortcut reduces sea voyage distance between Europe and India by about 7,000 kilometers. But the Suez Canal offers other critical benefits that steamship lines take seriously into account – benefits the Panama Canal cannot match. Consider Maersk Line, which in 2013 announced that it would stop transiting the Panama Canal and use the Suez Canal to move goods from Asia to the US East Coast. Its prime reason: ships are getting bigger. By loading more containers on one vessel versus several, the company can make more money. The liner’s last sailing through the Panama Canal was April 7, 2013 with its first service through the Suez commencing a week later. At the time, Soeren Skou, CEO of Maersk Line, said in a press release that the company would send vessels through the Suez Canal that could carry as many as 9,000 20-foot boxes at a time, instead of using two 4,500-box-vessels through the Panama Canal. “The economics are much, much better via the Suez Canal simply because you have half the number of ships,” he said. With the new Axis Canal, steamship lines will save waiting times from 11 to three hours. In addition, there’s savings on fuel consumption and operating costs. Plus the steamship lines can manage capacity better. Case in point: China Shipping Container Line’s (CSCL) Zhou Chenwei, captain of CSCL’s “Indian Ocean” vessel was quoted by China Daily as saying the new canal will save the carrier around $60,000 to $70,000 per ship. That savings can add up significantly given that CSCL has a fleet of over 150 vessels including some of the world’s largest container ships such as the “Indian Ocean” that is capable of hauling 19,000 TEUs. The same is true for Maersk Line, which on June 2, 2015, signed an order for eleven 19,630 TEUs container ships, in a $1.8 billion deal aimed at consolidating its ranking as the world’s largest ocean carrier. Size aside, increased costs for passing through the Panama Canal are also causing steamship lines to shift rotations through the Suez – particularly during the recession when cost cutting measures were paramount due to increase fuel charge and decreases in tonnage. While it is not possible to get freight rates, the toll structure for container ships transiting the Panama Canal is measured and priced on TEUs. In addition, a new Intra Maritime Cluster segment has been created which includes local tourism vessels, marine bunkering and container transshipment vessels that do not compete with international trade. The tolls restructuring will be implemented alongside a customer-loyalty program for the container segment, a first for the Panama Canal Authority (ACP). Frequent container customers will now receive premium prices, once a particular TEU volume is reached. Transit tolls at Egypt’s Suez Canal are reported as staying largely at their current prices this year. Many of those in the trade cite costs for transiting the Panama Canal as “exorbitant.” Not only are there crossing fees, steamship lines must consider costs associated with the time vessels must wait to enter the Canal. By comparison, half the number of ships transit the Suez Canal. Consider this: It takes 25 to 26 days to ship goods from Shanghai to New York via the Panama Canal; 27 to 28 days via the Suez Canal. And, according to market analysts, only about 20 percent of China’s exports to the United States head through the Panama Canal. Typically, Chinese goods are shipped to West Coast ports and then moved overland by truck or train to the East Coast, a method that generally takes between 19 and 22 days. The only bad rap (and a significant one) has been recent labor issues that have resulted in lengthy slowdowns at West Coast seaports. But then there’s the issue of the limited number of seaports on the US Gulf and East Coast that can accommodate Post-Panamax ships. All combined, this is why Drewry Maritime Research reports that an increasing number of carriers operating on the Asia-US East Coast trade are switching to the Suez route over the Panama Canal. According to Drewry research analysts, the trend is accelerating as lines look to use larger 8,000 TEU capacity vessels on the trade. Changing Seascape Today’s trend toward large mega-ships is changing the shipping landscape forever, and having a major impact on the Panama Canal – to say nothing of seaports on the US East Coast. Even when the new expanded Panama Canal is officially opened, the largest vessels it will be able to accommodate will be those carrying 13,000 TEUs. While the Suez Canal offers an option, it’s important to note that the largest Triple E vessels that won’t fit in the Panama can only voyage the Suez Canal when not fully loaded. This means even a fully loaded Triple E ship, like those being ordered by Maersk, cannot utilize the newly expanded Suez Canal. Then there’s the cascading effect of mega-alliances that are building rotations in a host of trade lanes. For example, the G6 Alliance, which encompasses APL, Hapag-Lloyd, Hyundai, MOL, NYK and OOCL, added port calls in China to its Asia-North Europe services to secure additional cargo loads on the trade for the upcoming peak season. Meanwhile, the CKYH Alliance (Cosco, K Line, Yang Ming, and Hanjin) is being joined by Evergreen. Plus, Cosco and China Shipping signed a “strategic co-operation agreement” last year that establishes a comprehensive strategic partnership and resource sharing mechanism in areas of shipping, terminal operation, logistics, shipbuilding, ship repair, amongst other activities. This all has an impact on how vessels are being displaced onto other routes and rotations via the Suez or Panama Canals. Georgia Port Authority Executive Director Curtis Foltz told AJOT several months ago that he expects services calling on Hong Kong and North Asia to migrate back to the Panama Canal, and that Suez routes will be dominated by Southeast Asia and the transshipment hub Singapore. He also contends that the Panama Canal expansion will allow a greater market shift of US trade to ports on the Gulf and East Coast versus West Coast once the economies of scale are available. “We don’t believe there will be a wholesale change or tsunami of freight coming to the East Coast,” he says. “But we do think there will be market share gains for the East Coast largely because the market is strong in the Southeast and this region is where most US growth is occurring. It’s simple economics 101 with the newer and larger ships.” In recent years, Suez routings have been GPA’s fastest growing trade lanes. In fact, the Port of Savannah is the only seaport on the East Coast that has all 13 Suez services. Final Word One last word: There could be the option of the Nicaraguan Canal, if ever built. The $50 billion plus canal in Nicaragua being proposed by a Chinese tycoon is three times the size of the Panama Canal and would accommodate extra-large bulk cargo ships. Opposition is steep, however, despite the fact Nicaraguan President Daniel Ortega’s government says the canal will provide many local economic benefits, including an end to extreme poverty and unemployment.