Battle of the canals: Panama vs. Suez

   Much has been written in recent months about the congestion issues at U.S. West Coast ports. Contentious labor negotiations between the International Longshore and Warehouse Union and its employers, represented by the Pacific Maritime Association, exacerbated those issues, costing shippers millions of dollars in merchandise delays and lost sales. Shippers have resorted to using air freight, which is much more expensive than ocean transport, and/or diverting cargo to East Coast ports, even if it then has to be transported back to destinations in the western half of the United States via truck or rail.
   Two maritime shipping entities that don’t mind the cargo diversions are the Panama and Suez canal operators. All cargo from Asia to the U.S. East Coast flows through one of these two major waterways, and increased volumes to East Coast ports means more business for them. At the height of the congestion crisis, ocean carriers were sending fuller ships between Asia and the U.S. East Coast through the canals, as well as “extra loaders”—containerships that are not part of any regular service rotation—to accommodate the additional cargo.
   Long before vessel congestion began to cripple West Coast port productivity and shippers started diverting cargo to the East Coast, however, the Suez Canal was slowly stealing market share away from its Central American competitor. Because the Suez is much wider and deeper than the Panama Canal, it can accommodate ships with a much greater capacity, a fact ocean carriers have taken advantage of as containerships continue to grow exponentially in size over the past five years. In fact, average vessel size for Asia-North America services transiting the Panama Canal has only increased 4 percent—from 4,418 TEUs to 4,592 TEUs—since Q1 2013, whereas average vessel size on loops routed through the Suez between Asia and North America has grown over 40 percent—from 5,684 TEUs to 7,984 TEUs—during the same period.
   The Panama Canal is in the midst of a massive expansion and renovation project in an attempt to close this gap. Once the expansion is complete, the waterway will be able to handle containerships of plus-15,000 TEUs, twice the size of those currently able to pass through the existing locks. Speaking at the Georgia Foreign Trade Conference in January, Jorge L. Quijano, chief executive officer of the Panama Canal Authority, said he expects to see a good deal of cargo currently transiting the Suez return to the Panama Canal.
   Quijano noted the tipping point in terms of cost and transit time for Asia-North America cargo is Hong Kong, meaning that carriers will route vessels leaving from Hong Kong and north through the Panama Canal, while cargo from Southeast Asian ports will continue to transit the Suez.
   The adjacent chart, built with data from BlueWater Reporting’s Trade Route Deployment application, compares combined nominal weekly capacity for direct region-to-region services between Asia and North America transiting either the Panama or Suez canal over the past two years. At the end of Q1 2013, 56 percent of combined weekly capacity in the Asia-North America trade flowed through the Panama Canal at 48,016 TEUs, and 38,014 TEUs transited the Suez. Since then, capacity via the Suez has exploded, particularly in the first quarter of 2015 when the 2M and Ocean3 alliance networks were launched, while the Panama Canal has seen only modest growth by comparison. Presently, 65 percent of weekly container traffic between Asia and North America goes through the Suez, equivalent to 101,906 TEUs, while the Panama Canal sees 54,812 TEUs pass through its gates on a weekly basis. That’s an increase of more than 168 percent in weekly Asia-North America capacity via the Suez, compared to a 14 percent increase via the Panama Canal.
   Of course, neither canal serves the Asia-North America trade exclusively. The Suez is the key gateway between Asia and Europe and the Panama Canal is crucial to South American imports and exports. Officials at the Panama Canal are hopeful they will be able to close the gap in terms of Asia-North America trade and restore the market share they enjoyed back in 2013 once the expansion is complete, especially if cargo currently being diverted to the East Coast remains there after congestion concerns on the West Coast subside. If I had to guess, I’d bet that capacity will only rationalize on a regional cost and transit time basis, as Quijano described.
   Meyer is web editor of American Shipper and a research analyst with BlueWater Reporting. He can be reached by email at bmeyer@shippers.com.

This column was published in the May 2015 issue of American Shipper.