Published On: Thu, Feb 27th, 2014

The melting ice cap, smaller ships and lagging demand and the Panama Canal future

Panama canalThe new Panama Canal after the planned opening at 2015, popularly referred to as Post-Panamax, will be able to transport larger ships, from 294 to 366 meters in length, 13 to 49 m, beam and 12 to 18m, draft. The 25% larger ships should be able to transport more goods cheaper and directly from Asia to the East Coast USA , and decongest present West Coast-USA harbors.

The trip from Asia to USA-East Coast will be at least 12 hours shorter than through the Suez Canal, but will have a price tag of US $ 848.459 for a 50,000 metric ton ship, versus only US $ 680,275 for the Suez.

The mega Panama Canal business model was very appealing when the project was launched, billions were invested, and the work was executed and is nearly completed. The entire process was in the makes for 20-30 years, but is now finally supposed to open for business in 2015. But the world has changed and new challenges pop up every day. Is the business model of Post-Panamax still valid????

To mention a few concerns out of many circulating.

1. Climate change: Although there is little---at most only 20 cm---, or no sea level difference between the Pacific and the Atlantic, massive amounts of water are needed by the new locks. The locks are to act as lifting mechanisms to hoist the sea lanes up and over the elevation of the Isthmus of Panama, about 400 meters in total, and then to lower them back down. For years, the Panama Canal was fed by a series of artificial lakes and dams, ensuring a ready supply of water in a country where rainfall is highly seasonal. The new locks will require a great deal more water than the lakes are able to provide, even in spite of reuse and recycling of the water. Erosion of the rainforest around the canal made it much harder to retain water during the dry seasons. Climate change is a factor nobody ever anticipated in the planning stages of this project. The new canal may not be able to function all year-round due to lack of water.

2. Change of market demand. The assumption that dominated the expanded Panama Canal trade route planning was, Asia, as cheap labor manufacturing base, and mostly USA and South America as consumers. That picture is rapidly changing though. Wages in China and India are no longer ‘dirt cheap’ and the gap with N. and S. America is closing quickly. Newly emerging economies in Brazil and Colombia are giving China fierce competition. And one could even imagine a reverse route from the USA, with super tankers, exporting its massive oil, and NLG, Liquefied Natural Gas, supplies to Asia, although the new canal is not equipped for such traffic.

3. Mega container ships may simply not be available in sufficient quantities to carry the projected cargo. The financial crisis of 2009, and consequent economic recession following, greatly reduced ship building. An enormous oversupply of smaller ships are, like sitting ducks anchored on the embankments of large ports, waiting for cargo, ready to undercut any officially offered shipping rate. In many ways these smaller ships are much more competitive since most receiving ports at East Coast-USA, do neither have the depth, nor the equipment to receive mega container ships. Therefore, Cuba was anticipating a hub function at its east point harbors, but reloading cargo from mega ships to smaller ones, would only eliminate the Panama Canal perceived cost advantages.

4. And most of all, the consumption markets in the USA and S. America may be saturated and not seeking additional supplies. A constant change and reduction of imported Asian products has been observed in several sectors.

Yes, the Post Panamax is impressive and the sky scrapers that changed the skyline of Panama City for ever, even more. But the assumptions may be totally outmoded and the project may take on its own life…..

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