How the Panama Canal expansion has already and will revolutionise Far East trade
 It has been 10 years since a trade delegation from the Savannah, Georgia, came to China to sell the "all-water route" to the US east coast via Panama.
They called their Deep South harbour on Savannah River an "Asian port" because of all of its Asian cargo coming and going. Crazy as that sounded, at the time, their statements soon proved true as their cargo numbers were undeniable.
And today, like old time partners, another delegation from the state capital of Atlanta, this time headed by Georgia Governor Nathan Deal came to congratulate the Government of Panama for enlarging its canal to accommodate even more cargo to the US east coast.
Said Governor Deal: "The Port of Savannah is the leading east coast trading partner with the Panama Canal, and today is a historic moment for both partners. I congratulate the Panama Canal Authority on its success and look forward to the our own harbour's deepening project."
And such was the way of the future as seen then - just as they predicted it. And the core of that future was a widened Panama Canal that was to double in size from transiting 4,500 to 9,000 TEUers. And it was all just seven short years away in 2014.
This would be the new road to and from Asia at a time when China's galloping double-digit GDP astonished the world. But it was also the element in Savannah's core belief that the Panama Canal was to provide a revolution in world tradecraft.
But as often happens, time makes fools of us all. And while yesterday's wisdom is not today's foolishness, it is often close to that. Back then, 14,000-TEU Emma Maersk was the biggest ship afloat and seemed it would hold that title for some time.
At the time, Suez didn't figure much in routing Far East cargo, not unless cargo came around the Straits of Malacca. But all that has changed - and dramatically.
But the "keep it on the water" mantra of the US east coast advocates was a persistent theme, because it was rooted in a fundamental verity of American geography. Most of the cargo wanted to go east of the Mississippi, even if it landed in Southern California.
Mentally we think of Chicago as half way across the country. But check again and you will find its more than two third across the continent. California is a decent hinterland in and of itself with the population the size of Canada's. But that's the good news.
The bad news is Oregon, Washington, Nevada, Idaho, Colorado, Nebraska, New Mexico, Arizona and Texas, which are not consumer rich, but instead are vast expanses which trucks and trains must traverse to get smaller amounts of cargo wants to go.
It is simplistic to compare one man driving one container on a truck or two trainmen conducting 100 containers against 13 men sailing a ship with 10,000 containers, but it's not far off when one considers the 13 men are affordable foreigners and not costly Americans.
Of course it did not work out exactly the way the Savannah people said. The railways literally moved mountains and got their costs down and the dawning of the age if the Panamanians was delayed two years and despite some cargo losses in some areas the demise of California as an Asian entrepot remained much the same.
And with dock strikes threatening first on the east coast and then on the west, the four corners strategy was developed among big box retailers, who threw up giant warehouses on the four corners of America, so if one course of access were blocked, stock would keep coming from another warehouse stocked from the coast causing the least trouble.
The opening of the expanded Panama Canal is likely to create a big shift in regional shipping networks, particularly with regards to the size and frequency of ships coming into the US east and Gulf Coast ports.
"But with the increase in size of vessels transiting the canal," said Andrew Kinsey, senior marine risk consultant at Aliens Global Corporate & Specialty, "you have a corresponding increase in operational, environmental and commercial risks.
"The value of insured goods transported will increase with the expanded canal, as will the risk accumulation," he said. "This is the reason why proactive loss controls will continue to be needed; including tracking of the risk accumulation. This is one of the biggest lessons learned from the Tianjin explosion in China last year."
Other experts look to a greater role being played by Suez Canal, conveying cargo not only to Europe but also to America.
"The lucrative Asia-US east coast market," said Rotterdam's Erasmus University economics professor Hercules Haralambides, "is increasingly served through the Suez Canal which has also expanded its capacity recently. To that effect, new hubs have been developed in the Mediterranean, such as Tangiers in Morocco, allowing transshipment to West Africa, while ships continue their trip over the Atlantic to the US east coast
"Would the two canals compete or cooperate?" Prof Haralambides is keeping an eye on this, particularly after the recent signing of a Memorandum of Understanding between the two canal administrations.
It could be argued that the Suez Canal may still have an advantage over the Panama Canal in terms of the time taken to transport cargo, especially with the recent news that it will be offering more competitive tolls for ships, as well as being able to handle the world's largest ships.
But the advantage depends on the size of ships as it would be more efficient to transport larger amounts of cargo along the Suez Canal, instead of less along the Panama route, particularly if this is a typical Asia-USEC service.
That said, the Panama Canal could trump its Suez competitor - for the moment at least - after a recent finding that it had regained traffic lost to the Suez Canal in late 2014.
The expansion project could therefore add to its competitive drive and help shipping lines bypass the west coast in favour of the US east coast, and increase the amount of trade running through its waterway.
"The expanded Panama Canal is able to transit ships that are up to 160 feet in beam and can transport between 8,000 to 14,000-TEU," states the ACP.
"Moreover, the number of global trade routes that the canal serves will grow, new liner services and routes will develop, and new segments will be introduced, such as Liquid Natural Gas (LNG).
Customers will also benefit from economies of scale, greater reliability due to the new locks state-of-the-art water-savings basins, and innovative ACP products and services, such as the new Corozal Port.
While the Panama Canal may have an impact on regional shipping networks, what is unclear is the effect that the expansion will have on ports, especially in the US, as much of the trade flows from the Panama Canal expansion will be heading towards many ports along the east and west coast.
In effect, the Panama Canal is a project that may have an impact on US ports and regional networks, especially if traditional panamax units are to be phased out of transpacific services for 8,000 TEU+ vessels.
However, there is not expected to be any initial increase in the number of containership calls to US ports. What remains to be seen is how much of an effect this will have on those ports in the longer term.
Overall, what is likely to affect China and its trade with the west is less the impact of the rival canals themselves and more on the state of world trade as we enter more interesting and difficult times in which the future becomes even harder to determine. |
