Logistics News: The Panama Canal Expansion Project Update

Posted by Steve on Aug 13, 2015 5:00:00 PM

Engineers began to fill the new Pacific end locks of the Panama Canal with water in June in preparation of testing the new gates prior to  opening to commercial traffic in April 2016.  This phase puts the 5.3 million dollar canal expansion project on track with the revised timetable for completion.

April 2016 is the planned date for the canal’s third set of locks to open, albeit 18 months beyond the original opening date of October 2014 and approximately $100 million over the original budget. Still, project managers are confident the expansion will generate more than adequate revenue to support the cost and time over runs in a profitable basis.  Jorge Quijano, the Panama Canal Authority’s administrator, thinks the canal will make up for lost time and revenue. “We expect some of the diversion from the West Coast to continue, and we expect to grab back most, if not all of what we have lost to the Suez Canal by not having post-Panamax vessel capacity.”  Although the West Coast labor contract with the International Longshore and Warehouse Union was finally signed in May, many industry experts expect problems to continue on the landside, potentially increasing cargo volume to the East Coast through the Panama Canal

Historically, U.S. West Coast ports have been the Panama Canal’s main competitor for Asian cargo moving to the eastern half of the U.S., but the Suez Canal became a larger player in recent years as carriers cut costs by shifting a lot of volume moving to the East Coast onto larger, more fuel-efficient container ships that couldn’t transit the Panama Canal.  This expansion project will level that competitive field.  The canal authority will increase its tolls on all vessel sectors when the new locks open, but it will introduce a loyalty program for ocean carriers that are frequent users of the canal.  The authority also plans reduced pricing options for cargo ships which are not at full capacity.  Although the Panama Canal tolls are slightly higher than those of Suez, the overall cost of the all-water route from Asia to the East Coast is much lower. The round-trip transit time is 10 days shorter via Panama. Ten days additional transit is a lot of fuel time, capital, and crew costs.                                   

Cargo handling companies on both the Atlantic and Pacific sides of the canal can also expect an increase in volume demand.  Container ships that use the Panama Canal also are frequent users of the transshipment hubs at both ends of the canal for transferring cargo to other ships that call at ports on the east and west coasts of South America, throughout the Caribbean and Central America. This will certainly have a positive affect on the local economy and labor providers as well as additional capital investment. 

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