Logistics Services Platform in the Panama Canal

INTRODUCTION

Just as the shipping industry experience a similar evolution of world economic, the dynamic of global supply chain is also influenced by natural disasters, political unrest, higher oil prices, global energy insecurity and economic downturn that redesign its distribution networks[1].

On the other hand, The Panama Canal is an important passageway for containership and bulk freight as they move cargo between The Atlantic and The Pacific oceans and has always been an integral part of the global supply chain.

SCENARIOS

1.      Financial crisis: Financial crisis has reinforced a shift in the world flow trade, influencing from North and West to South and East routes, due to the emerging of developing economies and their corresponding transition to a new economic status that are the new variables which redesign the supply chain and alter the shipping industry´s landscape.

2.      Panama Canal Expansion: The Panama Canal Expansion Plan was developed in a period before the 2008-2009 Financial Crisis and global economic downturn, taking for granted continuous  growth  container movement  as a pillar for the success of the project and with some busiest routes such as East Cost US – Asia and West Cost US – EU in the general cargo segment. But as noticed in the figure 1, the Financial Crisis hit the container traffic through the Panama Canal diminishing from 13 million TEU (2007) to 11.9 million TEU (2009) although it maintained a growth in toll revenue in the same period (see figure 2).  

3.      Bulk cargo: South America is an important exporter of all four major bulk commodities entering ocean trade such as Brazil (crude oil, LNG, iron ore), Colombia (Coal), Chile, Peru and Argentina (LNG).[2] In this segment, Panama Canal has a growing potential due to the discovery of new oil reserves detected Brazil for instance and permanent routes from East Cost US to Asia.

4.      Emerging Markets: Growing urbanization in enormous emerging developing countries such as China and India, that import large quantities of iron ore and coking coal a result of the gradual transition of this economies from export driven economies to consumer driven economies, with their concomitant consumption needs and their shift towards the consumption of more diversified foods (meat and related products), drives the huge grain shipments as a feedstock from abroad. According to UNCTAD 2011, one study finds that China will dominate global trade in 2030 creating three key routes: (a) Intra-Asia-Pacific trade, developed-developing region trade (e.g. China and Germany);  (b) intra-emerging economies trade (e.g. China- Latin America); and (c) China-Africa trade.   However, China’s wages are rising as well as manpower costs making the total landed costs less attractive for foreign investors looking to outsource their production making them go to lower cost countries for their activities. A trend towards moving manufacturing activities closer to the Western markets is to be expected within the next few years not only due to the cost but for the risks associated with having such a long supply chain and exteneded lead times.    

LOGISTICS SERVICES PLATFORM

These scenarios indicate that the container segment the Panama Canal expected, will not reach the projected container market. On the other hand, with large emerging economies such as the BRIC (Brazil, Russian, Indian and China) being the main engine of growth and trade expansion, there will be a new shift in the maritime seaborne trade that could decrease the passage of ships due to the concentration of trade in the Asia-Pacific region.

But as Panama plays an important role in the global supply chain, The Hub for the Americas could offer lowest logistics costs in the region. Gartner[3] (2012) projects that by 2014, 20% of Asia-sourced finished goods and assemblies consumed in the US will shift to the Americas, which of course can mean Mexico, Honduras, Costa Rica and other nearby sourcing locations. The reason is because most companies underestimated the true total cost of long supply chains offshored to Asia, miscalculating inventory costs, greater issues with product quality, lost sales due to long lead times, theft and more.

This opportunity represents for The Panama Canal the chance to generate and recover profits through the diversification of business activities, not only focused in the transfer of ship but also to provide added value to the cargo with a Logistic Activity Zone, taking advantage of spacious areas close to Balboa´s Maritime Terminal for instance (see figure 3), reducing the transport cost, lead time because proximity to the port and also close to the demand (US Market).   

Figure 3

Figure 2

Figure 1

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References

[1] UNCTAD Review of Maritime Transport 2011.

[2] Fleming, D. (2002). Patterns of international ocean trade.

[3] Gartner is an information technology research and advisory company headquartered in Stamford, Connecticut, United States.