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Panama Canal delay will benefit Suez

Panama Canal delay will benefit Suez
The Suez Canal stands to gain from delays in Panama

The further postponement to the opening of the Panama Canal’s enlarged locks from mid-2015 to end 2015 will be welcomed by the Suez Canal Authority which has already persuaded several ocean carriers operating between Asia/East Coast North America (ECNA) to change allegiance this year and now has more time to persuade others to follow suit.

The Panama Canal Authority (ACP) will be further worried about the continuing reluctance of North American importers to switch traffic away from the West Coast to the East Coast because, as already demonstrated, the only significant change to date has been the transfer of existing East Coast business from the Panama Canal to the Suez Canal.

The reasons for this are many, varied and complex but relate to the fact that eastbound transit times are much faster via the West Coast. For example, China to Los Angeles/Long Beach can be done between 10 days and 15 days, whereas US East Coast ports are often only reached after 30 days, on top of which there is a freight rate differential of just under US$1,500/40ft.

A further worry to ACP will be that the lack of cargo growth to ECNA comes at a time when vessels passing through Suez have been loading at more Asian ports. Previously Suez vessels have mainly been restricted to SE Asian ports due to the shorter distance compared to the Panama Canal but they now regularly load in NE Asia ports as well.

Drewry concludes that while the opening of the Panama Canal’s new locks is already overdue, that does not mean the damage is irreparable. Everything currently being lost through Suez could easily be switched back to the Panama Canal depending on the level of its new tariffs. In this respect, the Panama Canal Authority at least knows what it is up against, as the Suez Canal’s charges are already well known, being in the region of US$1m (northbound and southbound combined) for vessels between 8,000 teu and 9,000 teu.

As a result, ocean carriers will not be too troubled by the further delay to the Panama Canal’s new locks as they have already gained some, if not all, of the economies of scale that the new locks will offer.