Panama Canal aims to keep volume gains fueled by West Coast congestion

The Panama Canal Authority is setting its sights on retaining the increase in container volumes from Asia to the U.S. East and Gulf Coast ports it gained in recent months, thanks to shippers diverting cargo from congested West Coast ports.

Even though it has not experienced any increase in the number of Panamax vessels transiting the canal during the labor strife that clogged West Coast ports, the canal agency aims to boost containership traffic by both individual carriers and by carrier alliances when it opens its new locks to post-Panamax vessel traffic next year.

After the 2002 lockout on the West Coast, when shippers diverted their cargo on Panamax ships through the Panama Canal to the East Coast, a lot of those shipments did not return to the West Coast after the contract was settled. The same thing is likely to happen even though the International Longshore and Warehouse Union and the Pacific Maritime Association have reached tentative agreement on a new contract
“I think that any changes to the carrier networks would probably stay for now,” said Doug Hayes, vice president of equity research, freight transport, at Morgan Stanley in London.

Although the Suez Canal captured all of the increase in post-Panamax container ship traffic diverted to the East Coast from Asia during recent months of West Coast port congestion, the Panama Canal saw a big increase in the number of containers loaded aboard the Panamax ships on the 10 all-water services from Asia that use that route.

“We are not getting more ships, but what we have seen is more loaded containers,” Panama Canal Administrator Jorge Quijano said. “Carriers are loading more containers on their ships to the East Coast, so we are benefitting from that because we charge on loaded containers as well as on the ship.”

Spot rates from Asia to the U.S. East Coast reflect the sharp increase in demand for space on ships bound for the East Coast. Spot rates from Asia to the U.S. East Coast in mid-February before the Chinese New Year were almost double year-over year earlier as shippers sought alternate routes through the Suez and Panama Canals. Spot rates to the West Coast were up about 10 percent.

“What’s shifting now is that the vessels are shifting through the Suez Canal, because almost all of them are 8,000 TEUS and above and some up to 14,000 TEUS are arriving at West Coast ports,” Quijano said.

It is likely to take months to clear up the backlog of ships waiting to unload at West Coast ports now, so cargo diversions to the East Coast will probably continue for at least the first half of the year.

Quijano hopes to retain the increase in container volumes and boost its still further next year when the Panama Canal Authority opens the new set of locks under construction that will accommodate the post-Panamax ships that are now using the Suez Canal to travel from Asia to the East Coast.

“If this persists and we are able to open the new locks in the first quarter of next year, at the latest by April 1, then there could be a significant shift of post-Panamax vessels through here,” Quijano said. “There’s definitely going to be some shifting from the West Coast to the East Coast through the Panama Canal, which may become permanent.”

The canal agency is proposing a new toll structure on container shipping that it wants to introduce in the second quarter of next year after the new lock open.

“We are taking more risk under the new toll structure to lure more liners to come over and maybe re-network around the Panama Canal.” Quijano said.

The new structure rewards frequent container customers with premium prices once they reach a particular volume of 20-foot-equivalent units on ships transiting the canal.

“In our proposal, we are planning to lure not only the liners individually but the alliances as well by our loyalty program,” he said. “If you are in an alliance, you will get credit for transits by the vessels in that string. If you are in an alliance where NYK has some part of the vessel and “K” Line has some part of the string as well, then if the alliance has two transits, each will get credit for two transits. The more vessels in that alliance passing through the canal, the more each member carrier will benefit from the canal’s new loyalty structure.”