After 18 months in operation, the newly expanded Panama Canal has been a success as measured by the amount of cargo passing through. Moody’s Investors Services reports total tonnage in fiscal 2017 increased 22 percent, which was the largest growth ever recorded in the canal’s 103-year history. During the previous 10 years, compounded growth reached only 1 percent annually. Of course, some of the growth is to be expected — a larger canal invites more shipping — but the increase is translating to other unexpected results.
“Strong tonnage volume is driving solid revenue growth,” notes Moody’s. “[Panama Canal Authority] expects to surpass $3 billion in revenue by fiscal 2018, or at least 4 percent in revenue growth versus 2017. As a result, PCA is recording stronger-than-expected financial metrics, underpinning its high credit quality.”
A large percentage of the growth is attributed to natural gas shipments, something that was limited prior to the canal’s expansion. “LPG and LNG vessels together comprised 39 percent of transits through the expanded locks compared to only 3 percent of transits through the original locks in fiscal 2017,” notes Moody’s. “While LPG and LNG are growing business segments, container and bulk continue to be the main contributors, together representing 55 percent of total tonnage.”
Despite the positive growth and the expanded canal’s capacity to manage larger container ships, concerns remain on the horizon — even larger ships that cannot pass through the canal are in the works.
“A pair of shipping lines are bumping up the size of their existing container vessels in a move that — if it catches on — could hurt traffic at the expanded Panama Canal,” reports the Charlotte (North Carolina) The Post and Courier, the state that is home to two major Eastern seaboard ports. “According to maritime newsletter Alphaliner, Mediterranean Shipping Co. and CMA CGM lines are converting up to 21 of their ‘neo-Panamax’ vessels capable of carrying 14,000 cargo boxes into supersized ships that can haul 17,000 containers.”
Despite these concerns, Moody’s believes the expanded Panama Canal can remain highly competitive in part because as the larger ships come on line, they will displace smaller ships at ports around the globe and those ships will in turn use other routes, including the Panama Canal.
“Before the Panama Canal was expanded, [these ships] couldn’t cascade to the Asia-U.S. East Coast trade lane, but now they can,” Moody’s notes. “As new ships for the Asia-Europe market are delivered in the years ahead, more large vessels will be shifted to the Asia-U.S. East Coast lane.”
Over the long term, the Panama Canal also is expected to face stronger competition from the Suez Canal, which has no size restrictions, as an increasing number of these larger ships come on line. “Nonetheless, this shift will be gradual since it also requires investments from the ports to accommodate these larger ships,” Moody’s notes.
