The significance of the $5.25bn project to expand the Panama Canal should not be underestimated. When the extended canal comes into operation in 2016, it will change trade flows the world over.
Not only will the expanded canal offer a deeper and wider third lane and a new system of locks to accommodate the new 12,000 twenty-foot equivalent unit (TEU) vessels that shipping companies are increasingly utilising, it will influence when and to where such vessels are deployed, and affect supply chains worldwide.
“Current and new shipping sectors are going to be able to take advantage of the economies of scale resulting from the bigger vessels,” says Argelis Moreno de Ducreux, a senior specialist in the liner services segment and executive vice-president for planning and business development at the Panama Canal Authority. “A single post-Panamax vessel will move twice or even triple the amount of cargo that their Panamax counterpart can today.”
The Panama Canal expansion has already spurred port development in the Caribbean, central America, and on the US's Gulf and east coasts, inciting keen competition among ports, all of which want to attract their share of the increasing number of vessels that will pass through the region as a result of the Panama Canal extension.
In Panama itself, the Port of Singapore Authority (PSA) is expanding a terminal operated by its subsidiary PSA Panama International Terminal, increasing its annual capacity from 450,000 TEUs to 1.85 million. The expansion, which is subject to approval by Panama's government, is expected to attract cargo travelling from Asia to the west coast of the Americas.
Meanwhile, development is well under way on Panama Pacifico, a 14-square-kilometre business and global logistics centre on the western bank of the Panama Canal. The centre is already home to more than 200 companies, including 3M, Dell, VF, BASF and Caterpillar. Located in one of Panama’s special economic zones, Panama Pacifico offers companies special tax, labour and legal incentives, including tax-free treatment for value-added goods produced within the zone.
“The value-added opportunities are immense,” according to Henry Kardonski, Panama Pacifico's managing director. He adds that Asian companies are especially interested in the centre. “There is big interest from… computer chip manufacturers, automotive divisions, some construction companies that specialise in additives, and pharmaceutical companies [looking for facilities] for packaging and repacking for different regions," he says.
Rainbow Agrosciences, one of China’s largest agrochemical companies, is in the process of building a plant and distribution centre in Panama Pacifico. The centre will produce and distribute products to the company's Latin American markets, giving it a faster response time in the region.
Mr Kardonski explains that Panama Pacifico allows companies to hold smaller inventories, since shipping times to Latin America from Panama are one week or less, compared with 30 days or more from Asia. “Shipping goods through Panama also gives companies a lot of weekly connections to [Asia] and Europe, as well as connections to every port in Latin America and North America,” he adds.
Access to the Latin American market is an advantage being promoted to push investment in other locations, including Jamaica and the Dominican Republic. Both Jamaica’s Port of Kingston and Dominican Republic’s Port of Caucedo offer quick shipping times throughout the Americas, a region with more than 800 million consumers, and are hoping to benefit from the expansion of the Panama Canal.
In late March, the Jamaican government reached an agreement with France-based container terminals developer and operator Terminal Link to privatise the Kingston Container Terminal. As part of the agreement, Terminal Link has agreed to dredge Kingston Harbour, allowing it to accommodate post-Panamax vessels. The government also has plans to develop 16 special economic zones in the country, to further stimulate investment.
Moreover, local multipurpose port terminal operator Kingston Wharves Limited (KWL) has committed to a three-phase, $70m plan to double the Port of Kingston’s throughput to 1 million TEUs by 2019. Construction has already begun on the first phase of the development, a $20m, 15,000-square-metre logistics facility that is expected to be completed in early 2016. Grantley Stephensen, KWL's executive director, calls it a “game changer”. It will contain facilities to modify, repackage and then ship items to near-market destinations. “The intelligently designed warehouse will offer one-stop logistics and warehousing solutions operating 24/7,” says Mr Stephensen.
In the Dominican Republic, the Caucedo Logistics Centre – designed to accommodate post-Panamax ships – is being developed by Dubai-based global port operator DP World in joint partnership with the Caucedo Development Corporation. The centre, which will be the first logistics centre in the country, is located between Port Caucedo and Las Americas International Airport.
Port Caucedo itself received a major boost to its profile in 2013, when it became the base for four leading marine transport operations – Evergreen, NYK, Hyundai Merchant Marine and Hanjin – on North America-South America transshipment routes. As well as its port and new logistics centre, the Dominican Republic also offers incentives in its more than 55 free-trade zone parks, and has a free-trade agreement with the US.
Ports of call
Meanwhile, Cuba is also hoping to attract some of the post-Panamax traffic and has undertaken a huge development project to upgrade the Port of Mariel, some 45 kilometres west of Havana. The 60-square-kilometre facility has been dredged to a depth of 58 feet to accommodate larger vessels. The container terminal, which has an annual capacity of 850,000 to 1 million containers, was opened in January 2014 and is run by Singapore-based Global Ports Management. The special economic zone, however, is still under construction.
“Progress is moving very slowly, and Cuba is very secretive about it. They are not being transparent,” says Sarah Stephens, executive director of the Centre for Democracy in the Americas.
Port Authority of Jamaica’s vice-president for business development, Edmond E Marsh, is not concerned about the competition that Port of Mariel might create. “That project is years away,” he says. “Plus, we have developed relationships with steamship lines over the years. That counts for a lot in this business.”
Elsewhere in the Caribbean, the Bahamas Freeport Container Port (FCP) is also strengthening its position as a transshipment hub, leveraging its geographic location and serving the eastern seaboard of the Americas. The World Bank recently noted that FCP is the second most efficient port in the Caribbean, behind Puerto Rico’s Port of San Juan, and that it “will have major transshipment growth potential following the completion of the Panama Canal expansion”.
Challenging FCP for US-bound cargo, however, is Florida’s PortMiami. “We are hoping that the steamship lines will use PortMiami as their first call once they go through the [Panama] Canal,” says PortMiami's port director, Juan Kuryla.
The port has a fully operational on-dock rail programme with its partner Florida East Coast Railway, which makes it possible to take up to 200,000 containers per year directly off the port’s grounds and connect them with 70% of the US population in four days or less. Another key efficiency improvement that has been made in preparation for post-Panamax traffic is a tunnel that connects the island port to the interstate system, rather than having to go over a bridge.
In July, PortMiami should also complete its deep dredge project, which will deepen the port’s main harbour channel to between 50 and 52 feet. “That will make PortMiami the only major logistics hub south of Virginia capable of handling fully laden post-Panamax vessels,” says Mr Kuryla.