“I Know a Short-Cut” – The Panama Canal (Part I)

By: Dave Cooley, GHPB

Introduction

While growing-up, the family would occasionally take a short automobile ride, to spend an afternoon visiting, or to take-in a local historical site. According to my sister and me, these noble opportunities for a family outing sometimes turned into a debacle. This occurred when my father uttered his most famous phrase, “I know a short-cut.” More often than not, this created an occasion to observe, for the next hour or so, the oft unexplored countryside of Western Pennsylvania as seen from an automobile traveling along a winding and hilly two-lane road.

Panama Canal Map

Figure 1: Panama Canal Map

The Panama Canal

The world of shipping also has a couple of “short-cuts,” one of which is the Panama Canal. The Canal traverses the Isthmus of Panama in a north-south direction and utilizes a series of locks to raise and lower ships that sail between the Atlantic and Pacific Oceans. The three sets of locks are paired; that is, there are two parallel flights of locks at each of the sites. This, in principle, meant ships could pass in opposite directions simultaneously. However, today’s larger ships transiting the Canal cannot safely pass each other while underway at the Culebra Cut; formerly called the Gaillard Cut. To ensure safe passage, ship traffic travels in one direction for a period of time. Then vessels transit from the opposite direction for a similar period of time., This allows ships to use both flights of the locks, optimizing efficiency.

Transiting from the Pacific Ocean, ships encounter the first set of locks at Miraflores; a two-step flight lifting vessels 54 feet (27 feet at each flight), and a single flight slightly further inland at Pedro Miguel that lifts ships 31 feet for a total rise of 85 feet, the elevation of Gatun Lake. At the other end of the lake, a triple flight at the Gatun locks lowers vessels 85 feet (28+ feet at each flight) to exit the Canal into the Atlantic Ocean.
Prior to the latest expansion of the Canal, the existing lock chambers were 1,000 feet long, 110 feet wide, and 42 feet deep, accommodating a maximum ship dimension of 965 feet LOA, a beam of 106 feet, and a draft of 39.5 feet Tropical Fresh Water. A ship optimizing these dimensions is known as a “Panamax” ship.

The recent $5.7 billion expansion of the Canal, which began in 2007, was completed on 26 June 2016. This expansion doubled the capacity of the Panama Canal by constructing an additional set of locks and approaches that now allow larger ships to transit the Canal. The new lock chamber dimensions are 1,400 feet long, 180 feet wide, and 60 feet deep. These new chambers will accommodate ships with an LOA of 1,200 feet, a beam of 160 feet, and a ship’s maximum allowable draft of 50 feet Tropical Fresh Water. These dimensions also define the parameters of the new Neo-Panamax vessel.

Benefits of Canal Transit

Ship owners, shippers, and receivers all benefit from capturing the shorter voyage distance achieved by sailing through the Panama Canal. The shorter voyage benefits owners by reducing fuel consumption when sailing the shorter route through the Canal. Similarly, the cargo shipper (the exporter) benefits as the goods aboard ship are delivered sooner, resulting in earlier payment and lowering the need for working capital. Lastly, the receiver of the cargo or consignee (the importer) benefits by receiving the goods in a shorter time frame, potentially improving sales turnover and profits. Examples of the distance benefit achieved by using the Panama Canal at sailing speeds of 12 knots (most ships) and 20 knots (containerships) are shown by Table 1. 

Table 1-Benefits of Panama Canal Routing. Source: GHPB

Canal Transits

Northbound-Southbound Voyages

Utilizing the Panama Canal’s fiscal year calendar of October 1 to September 30 to analyze data, Canal transits of all ship types totaled 13,413 in 2017, a 3.3% increase compared to 2016. Southbound transits (Atlantic to Pacific), the more dominant traffic pattern, recorded 6,663 Canal transits, up by 3.8% compared to 2016 and composed of 5,477 laden passages (82%) and 1,186 ballast passages (18%). Northbound transits (Pacific to Atlantic) for the year totaled 6,750 voyages, an increase of 2.9%, with 4,521 laden passages (67%) and 2,229 trips (33%) in ballast. In terms of ship utilization, the three most prevalent ship types transiting the Canal were bulkers, containerships, and chemical tankers.

Dry cargo bulk carriers recorded 2,915 transits (22% of the total transits) delivering dry cargos such as ores, grains, coal, fertilizers, iron, and steel throughout the world. For example, ships destined to the U.S. usually begin a northbound voyage from the East Coast South America, Australia, or the Far East to destinations along the U.S. Gulf or East Coasts. Southbound voyages with calls at ports along the U.S. East or Gulf Coasts sail to destinations along the West Coasts of either Central or South America, the West Coast of the U.S., or on to Asia and passing through the Canal en route.

Containerships were second in terms of the number of transits during 2017 with 2,493 passages through the Canal (18% of the total). A sample of containerships destined for the U.S. Gulf and East Coast ports utilize the Canal on voyages that begin at ports in Asia or the West Coast of South America. Southbound voyages of containerships sailing through the Canal after calling at multiple U.S. ports along the Atlantic seaboard and the Gulf of Mexico are usually destined for ports along the West Coasts of either Central or South America, or returning to Asia after completing a trip to the U.S.

The third ship-type recording the most laden transits of the Canal were chemical tankers, making 1,959 trips or 15% of the total transits. With southbound ships dominating the trading pattern, most of these vessels begin the journey carrying various chemicals manufactured at ports along the U.S. Gulf Coast and are destined for the west coasts of either Central America or South America, as well as to countries in Asia. The northbound trips are predominantly ballast transits of ships returning to the U.S. Gulf Coast to load for a repeat voyage.

These three ship types account for 7,367 laden and ballast transits of the Panama Canal or 55% of all traffic. All other types of ships recorded 6,046 voyages through the Canal with 1,756 laden northbound transits and 1,145 transits in ballast. Southbound activity reflected 1,990 laden movements and 1,155 transits in ballast.

Existing Locks (Panamax) and the New Locks (Neo-Panamax)

Of the 13,413 transits of the Canal, 10,164 transits of deep draft ships utilized the existing locks, referred to as the Panamax Locks (75%), while 1,828 deep draft transits utilized the new locks, known as the Neo-Panamax Locks (15%) and 1,421 transits (10%) were shallow draft vessels. Containerships made the most transits through the Neo-Panamax Locks at 954 trips, followed by gas carriers at 539 trips, LNG carriers at 159 trips, and dry bulk ships at 125 trips. These four ship types completed 1,777 transits or 97% of the ships moving through the new Neo-Panamax Locks during 2017. During 2017, ships utilizing the Neo-Panamax locks carried about twice the cargo as compared to the same type of ship transiting the original Panamax locks.

The new locks have been in operation for just over one year. The Panama Canal Authority recently reported that 2,000 vessels had passed through the Neo-Panamax locks. As logistics systems reorient, increased use of the Panama Canal will continue and the maritime industry and global trade will benefit.

Origin and Destination of Cargos

Figure 2-Panama Canal – Top Five Countries. Source: GHPB analysis of Panama Canal Authority data.

The top 5 out of the 15 top countries in terms of being the origin and the destination of the goods and commodities transiting the Panama Canal are the United States, followed by China, Chile, Peru, and Japan. These 5 countries provide 73% imports and exports that comprise the origin and destination of the top 15 countries. The next 5 countries total 23% and the last 5 countries out of the top 15 provide 4%. The U.S. is the dominant source of exports transiting the Panama Canal. China, Chile, and countries 6-10 are relatively balanced between exports and imports. Japan, Mexico, and countries 11-15 are sinks for imports as compared to exports. See Figure 2 for the top 5.

Panama Canal Tolls and Traffic

Figure 3-Panama Canal Traffic Statistics. Source: GHPB analysis of Panama Canal Authority data.

From the time the Panama Canal began operations in 1914 until December 31, 1999, when the Canal was transferred to the Republic of Panama, the United States government managed the Panama Canal as a non-profit organization. That is, the toll structure was oriented to recover operating and capital costs appropriated proportionally among all of the vessel types sailing through the Canal. The Panama Canal Authority continued this toll structure for three years following the transition (1999-2002) until a new rate structure was developed.

In 2002, an updated rate structure designed to be particular to each vessel type was implemented. The concept of the toll structure is predicated on a combination of the route sailed and the quantity of cargo aboard the ship. This process evolved over the next several years. Today the toll structure is differentiated according to the ship type, with some vessel types including an adjustment for the quantity of cargo aboard. For example, tolls for dry bulkers are based on deadweight tonnage capacity and metric tons of cargo; liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers are based on cubic meters; tankers are measured and priced according to the tonnage calculated by using the Panama Canal Universal Measurement System (PC/UMS); and containerships are measured and priced related to TEUs. As a result, Panama Canal tolls rose from $1,482 million in fiscal year 2010 to $2,238 million in fiscal year 2017, a rise of 51% over the 8 years for a Compound Annual Growth Rate of 5.9%.

Transits through the Canal show a slight decline of about 680 passages from 14,230 a year during 2010 to just over 13,550 a year for 2017. With tolls rising more than 50% over eight years, tonnage increasing by 18%, and transits declining only by about 5%, the annual tolls per transit rose from about $104,000 in 2010 to over $165,000 in 2017. Even in a down shipping market during most of these years, the Panama Canal Authority has managed to create an attractive value proposition resulting in increased revenue. See Figures 3 and 4.

Figure 4-Panama Canal Tolls per Transit. Source: GHPB analysis of Panama Canal Authority data.

In part II, ships sailing will be examined. Look for this data in GHPB Dec/Jan Port Bureau News.

  • Date November 20, 2017
  • Tags November 2017