Amid all the hoopla surrounding the opening of the expanded Panama Canal late last month, one dissenting voice has emerged on its impact to world shipping.
Xeneta, the ocean freight price comparison website, believes that the newly inaugurated Panama Canal may not be as beneficial as it seems for containership carriers.
With neopanamax vessels now able to transit the waterway for the first time, “the increased efficiencies may actually undermine rates – deepening the crisis for a segment already suffering the strains of severe overcapacity and cut-throat competition,” Xeneta said in a release today.
Xeneta CEO Patrik Berglund reckons this neopanamax short-cut could come at a crippling cost.
“On the face of it improved transit times and two way traffic deliver huge benefits for container carriers,” he noted, “facilitating more cargo to the US East Coast and Caribbean ports faster and cheaper. However, there could be real trouble brewing on the horizon.
“Firstly, the neopanamax vessels have to attract trade to this fresh route, and this could initially force them to keep rates artificially low – the last thing the industry needs. Then we have the fact that more ships will be able to compete on the East Coast, potentially pushing rates even lower.
“This will most probably be exacerbated by the newly arriving fleets of 18-20,000 teu megaships – MSC has four in the pipeline now – causing a cascading of existing tonnage onto attractive routes, like the East Coast. It all spells, what could be, an impending financial disaster for a segment currently defined by consolidation, new alliance-building, and ongoing uncertainty.”
Berglund is backed up in his analysis by Rosemont College professor Andrew Lubin, a specialist in container freight and logistics. He noted that, at present, 68% of container movement from Asia into the US East Coast comes via the West Coast, but believes that about 10-14% of that will be diverted to the Gulf and East Coast ports within the year.“Faster transit times and the fact that carriers switching tonnage to the East Coast will now be able to avoid West Coast labour unions will boost vessel numbers and therefore competition,” Lubin said. “Increased competition has an obvious impact in the market – lower rates.”