Decision to expand Panama Canal looks ‘even better’

The first commercial passage of a neopanamax containership through the new locks and third lane of the canal will occur on Sunday with the 9,472-TEU COSCO Shipping Panama.    The Panama Canal will open a third lane this Sunday at a time when world economic growth has slowed and the shipping industry struggles with excess capacity.
   The ship that will make the first passage is the COSCO Shipping Panama, a 9,472-TEU containership that launched in January.
   The new locks at the canal will allow much larger ships to use the waterway. For example, the size of the largest containerships using the waterway could roughly triple from about 5,000 TEUs, the so-called “panamax” ships  to around 13,000-14,000 TEUs the new “neopanamax.” The term neopanamax is being used widely to refer to ships that are too large to fit through the  existing locks, but like the COSCO Shipping  Panama, not necessarily the testing the limits of what the new locks may eventually accommodate.
   While the timing may seem inauspicious, Manuel Benitez, deputy administrator for the Autoridad del Canal de Panama (ACP), said in an interview on Thursday the decision to expand the canal looks “even better.”

Manuel Benitez, deputy administrator of the Panama Canal Authority
   “Even though shipping, especially in the container sector, which is in one of its worst years, we have had a very sound year,” Benitez said. “Last year we had a record in terms of tonnage that passed through this canal even though the container industry and the world as a whole is in a slow period.”
   The response of shipping companies to the opening of the new expanded canal “encourages us even more,” he said.
   So far, 165 reservations have been made for passages through the canal with “neopanamax” vessels, the vast majority being container vessels, but also liquid petroleum gas (LPG) carriers and roll-on/roll-off ships.
   Throughout Panama City, electronic signs counting down the days until these neopanamax vessels could transit the canal could be seen. Yesterday, a panamax container ship, the COSCO Houston, passed through the new locks during a test.

COSCO Houston being tested in new locks
   Benitez also said the authority had expected some “cannibalization” of the existing services that they run through the canal as carriers combine strings to similar port ranges.
   “We had anticipated this year we were going to close with five services with the neopanamax ships. “The truth is we are now going to have six. Evergreen has just announced a new service we were not expecting,” he said. “By next year we are estimating 11 services of neopanamax ship and 21 services with panamax ships. A total of 32 which is what we have today, basically. We will have basically the same amount of services, but with more capacity because of the new canal,” Benitez explained.
   In addition to Evergreen, the container carriers that have already reserved transit slots for neopanamax ships include MSC, NYK, Hyundai, COSCO, Yang Ming, “K” Line and Hanjin.
   Anders Boenaes, vice president, head of network at Maersk said today in a presentation in Panama today that his company plans to convert one of the two transSuez services  (TP 11 or TP12) Maersk operates from Asia to the U.S. East Coast to a transPanama service, using ships that are larger than today’s panamax ships.
   While many of those container services will be from North Asia to the U.S. East Coast, others will be between Europe and West Coast of South America.
   “As a whole the container shipping industry is taking advantage of the new ships that could not transit this route and taking out of service old panamax ships, especially the larger ones of 5,000-TEU,” Benitez said.
   Those panamax container ships (the very largest carry 5,100 TEUs) have a length overall of 965 feet and width of 106 feet. With a length to width ratio of about nine to one, they are unstable and are required to carry a lot of ballast, he explains.
   The new locks, which are 1,400 feet long and 180 feet wide, will allow deployment of more efficient neopanamax ships on routes crossing the isthmus, ships with a length to width ratio of seven to one, for example. Not only will new ships be larger, but also their stubbier design increases their stability. Hence the ship engines can push less ballast and more cargo. Initially, many container carriers are planning to deploy ships between 8,000-9,000 TEUs on the new routes, but new locks could receive ships carrying 13,500-14,000 TEUs.
   He said five of the six operators that have booked passages on neopanamax LPG ships through the canal  are new customers for the canal, and he notes that when the new locks were planned, no one had expected the U.S. to become a large exporter of petroleum products. As gas producers complete the construction of their “trains” of liquefaction plants or “trains,” the canal expects to see liquefied natural gas (LNG) carriers use the canal as well.
   Even with the existing locks, oil exports are moving through the canal.
   The cost of the canal was originally estimated to be about $5.25 billion, including around $3.18 billion for the new locks at the canal. The cost did increase to about $5.4 billion part of which was anticipated as there were escalation clauses in the contract where the price of the project would rise up and down because of changes in the cost of labor, steel, diesel fuel and cement.
   During the construction, disputes developed between the canal authority and the multinational consortium building the locks. That dispute reached a crescendo with work stoppage in early 2014, but the two sides were able to come to an agreement whereby repayment of money that was advanced by ACP to the consortium was delayed until December of 2018 to give time for nearly $3.5 billion in disputed claims to be adjudicated. Those advances amounted to $872 million.
   Benitez says of those $3.5 billion in disputed claims, $1.5 billion was taken to a dispute adjudication board and the contractor consortium said another $2 billion that has yet to begin the dispute resolution process.
   The dispute adjudication board has resolved around $950 million in disputed charges and awarded the contractor more than $300 million. Neither side has been pleased with the ruling by the dispute resolution board, said Benitez, and they have both taken the disagreement to a second stage, an international arbitration.
   Benitez said in the event of rulings unfavorable to ACP, the amounts awarded to the consortium would be taken out of the $872 million advance to the consortium.
   “Financially, the project has no problems,” Benitez said. “It’s not that we did not have the cash, in fact it is completed. Now the contractor is saying, this money I owe the ACP, I really don’t owe them because we have all of these claims against the ACP.”