Why the Panama Canal has seen double-digit box cargo growth
The Panama Canal has bounced back from the impact of the pandemic with an extraordinary boost in containerised cargo.
The container market segment transiting the Panama Canal enjoyed double-digit growth between October 2020 and March 2021 (Panama Canal Authority’s first semester of fiscal year 2021). Transits grew 10% in comparison with the previous fiscal year and volumes by 13%.
Panama Canal Authority trade specialist Argelis Moreno tells CST, “During the pandemic, shipping lines decided to implement a capacity management strategy to mitigate the drop of containerised cargo volumes due to the widespread, lockdown-induced closure of shops and businesses in the Americas and in Europe. This resulted in a temporary reduction of transits through the Panama Canal, mostly in the route that joins Asia and the east and Gulf coasts of the United States.
“By mid-2020, the world economy began to recover with the reopening of businesses and consumer sentiment resulting in increased purchases.”
And there was a resulting positive impact on cargo volumes passing through the Panama Canal for the first six months of the fiscal year 2021, with Ms Moreno noting imports to the United States “registered significant growth due to the replenishment of inventories and drastic changes in consumer buying habits driven by online purchases”. This benefited the container shipping industry with increased cargo volumes and profitability and had a positive impact on Panama Canal traffic indicators.
Asia to USEC: cargo boost
Ms Moreno singled out that a major factor behind the double-digit growth for the container market segment through the Panama Canal came from the “extraordinary increase” of containerised cargo volumes, especially moving from Asia to the east coast of the United States (USEC).
She adds, “To face the high demand, carriers implemented changes in their service networks taking advantage of the Panama Canal’s reliability, in addition to the time and distance savings the waterway route offers, with more transits and bigger vessels. Carriers also added ad hoc extra sailings and used the Panama Canal route in the backhaul voyage for the rapid repositioning of empty containers, avoiding the Suez Canal.”
Commenting on the positive start to the year for the Panama Canal, Ms Moreno says the result of the unexpected increase in demand, mainly on the route from Asia to the east coast of the United States, has generated the “re-establishment of services, transits of ships with extra cargo, higher utilisation rates for loaded containers, more transits on the return trip and fewer blank sailings”.
Fiscal year 2021 began with 28 liner services (19 neo-panamax and nine panamax), and by the end of the fiscal year the Panama Canal expects two additional neo-panamax services.
From October 2020 through the end of March 2021, 9.3M TEU of deployed capacity was registered.
Since opening the third set of locks in 2016, the Panama Canal has observed a greater number of transits of neo-panamax vessels adding more capacity through the waterway, in parallel with an increase in vessels size of up to 15,846 TEU, deployed in the Asia-East Coast of the United States route.
One challenge the Panama Canal is battling is low water levels.
Ms Moreno explains, “As a result of climate variability, the Panama Canal watershed experienced its fifth-driest year in 70 years in 2019. It follows several years of lower-than-average rainfall coupled with a 10% increase in water evaporation levels due to a 0.5-1.5°C rise in temperature.
“The implementation of a robust water management system is a critical priority, as low water levels at the Canal are projected to continue impacting customers despite water conservation measures.”
She explains that a long-term solution for water reliability has been of “paramount importance” for the Canal, and despite numerous challenges such as the effects of the coronavirus, the Canal has continued to invest in a sustainable solution.
Ms Moreno comments, “Building upon advancements in technology, infrastructure and engineering, the Canal plans to develop a robust system that will secure the operational resilience and reliability of the waterway as it prepares for long-standing and coronavirus-driven shifts in global trade.”
On 7 September 2020, the Panama Canal published a Request for Qualifications (RFQ) for the prequalification of potential offerors for the engineering, design and construction of a new water management system that will guarantee an adequate water supply for both Canal operations and local consumption for the next 50 years.
Becoming carbon neutral
Elsewhere, the Panama Canal Authority has started a strategic drive to become carbon neutral by 2030 by investing in electric vehicles, alternative fuels and reforestation.
To kick off its transition to greener operations, the Panama Canal Authority (ACP) will purchase four electric vehicles as part of a pilot programme to collect data, which will be used by management to plan the future migration of the Canal’s entire fleet away from fossil-fuel dependence. Its strategic decarbonisation plan also includes introducing alternative fuels for tugboats and pilot launches. ACP also intends to substitute electric production processes in favour of photovoltaic plants and hydraulic energy.
“We are committed to sustainability,” says Panama Canal Authority administrator Ricaurte Vásquez Morales. “We are laying the foundations, creating the tools and identifying the changes needed to achieve efficiencies that will allow us as an organisation to reach carbon neutrality.”
It aims to ensure all facilities and infrastructure projects are environmentally responsible and sustainable. “This is a fundamental strategy for the waterway’s long-term operation and sustainability,” says Mr Morales. “This process will build on our long-standing efforts to minimise our environmental impact, including encouraging customers to use clean fuels and reduce their carbon footprint.”
ACP will develop an annual greenhouse gas inventory and an action plan with measurable targets to reduce emissions.
The key waterway reduced more than 13M tonnes of CO2 equivalent emissions in 2020 by offering a shorter route for ships in comparison to alternative routes.
ACP is incentivising shipping lines to minimise their environmental footprint through its Green Connection Environmental Recognition Programme. This recognises customers who demonstrate excellent environmental stewardship, including using low-carbon fuels and environmentally conscious routes. It is currently analysing how to take into account vessels’ technology and carbon footprints into its dynamic pricing strategy.
There are already transit separation schemes and vessel speed-reduction programmes. The Authority says these initiatives help shipping lines to reduce the risk of colliding with whales migrating near the waterway and lower their pollutant gas emissions.
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