Panama fights for backhaul with reduced tolls

8/23/2017

Just over a year on from the opening of the third set of locks on the Panama Canal, the government has approved proposals to modify canal tolls in an effort to attract more boxships on the backhaul leg to Asia.

The Panama Canal Authority (ACP) will introduce new tolls from October 1 that will be $10-$15 per teu cheaper on the backhaul leg.

“The quick adoption of the widened canal by container lines was expected, given that the $5bn project enabled them to upsize vessels from a maximum of around 5,000 teu to nearer 14,000 teu; in the process adding a new release valve for the cascade of ships from other over-tonnaged lanes,” analysts at Drewry said in a report on the new toll structure. “As we said prior to the canal expansion, the vessel upgrade process would be gradual as at the time there was insufficient demand, as well as physical restraints at US east coast ports, to enable all services to immediately deploy the maximum ship size available.”

Carriers adopted a cautious approach to the expanded canal initially, upgrading vessel sizes on the Asia-US east coast via Panama route slowly, while simultaneously reducing Suez Canal transits, Drewry added.

There are now 14 weekly Panama loops, the same as before the canal expansion, whereas the number of Suez-routed services has shrunk from nine to five.

“This process has seen overall capacity (ignoring the temporary impact of void sailings) deployed across the two routes broadly stay put in the past year or so,” Drewry said. “Effective capacity in July 2017 was actually down by 1.5% on the same month last year.”

The upgrade in the size of ships used on the Panama Canal has risen by 60% since May 2016, from 4,900 teu to 7,900 teu as of July 2017. The average ship size is now larger than those transiting the Suez Canal, making Panama now on a par with Suez in terms of vessel economies of scale.

But while the Panama Canal proved popular on the headhaul to the US, only eight of the 14 services make backhaul using the same route. Three return via Suez, which has been offering competitive backhaul discounts, and three have been routing south of Africa to avoid any canal tolls on the backhaul.

However, Drewry noted that while the savings available to carriers from the new toll structure would increase according to the size of ship deployed, they might not be sufficiently attractive to immediately change carriers’ routing plans.

“Based on the eight services that currently go through the Panama Canal in both directions with an average ship size of 6,900 teu, the round-voyage saving will only be around $30,000 per ship,” Drewry said. “That means that for the 80 ships that will qualify the total annual discount will amount to nearly $13 million, given that each ship will make about five round-voyage transits in a year.”

The Suez Canal, however, has extended to the end of the year its own toll rebates of 45%-65%, depending on the direction and port coverage.

“If that offer is repeated for next year the cost-benefit of ACP’s discount is unlikely to lure many carriers across,” Drewry said.