Next week sees the 100th anniversary of the opening of the Panama Canal, which has played a significant role in the history of shipping and seaborne trade. Whole classes of ships have been defined by their ability (or not) to transit the canal. Today, there are still almost 900 containerships in the fleet referred to as ‘Panamax’ and another 3,000 or so capable of passing through the current locks.

What’s The Plan?

The completion of the new Panama Canal locks remains behind schedule, with the opening date now pushed back to 2016. Despite this, the potential impact remains a hot topic. The project was partly driven by the desire to capture greater revenues from the container sector by enticing larger boxships and increased volumes of trade through the canal. The most relevant trade lane in volume terms (by far) is that from Asia to the US East Coast, an estimated 3.6m TEU in 2013 (though an increasing part of this is actually being moved via the Suez Canal).

How Big?

The new canal dimensions will dramatically alter the number of boxships that can potentially transit. As the graph shows, at the start of 2H14, 3,833 of the boxships in the fleet (75%) could transit the current Panama locks (the Panamaxes up to around 5,100 TEU, about 140 of which are actually deployed on Asia-USEC services, and other smaller vessels). An additional 1,111 ships in the fleet (22%) will be able to transit the new canal. On order, 355 of 454 units (78%) will be able to transit the new canal. In terms of ‘cut off point’, most vessels of up to and around 13,000 TEU will be able to transit.

With the vast majority of the world’s boxships able to transit the new canal, how far might upsizing of services via Panama go? Larger ships will offer potentially lower costs per box for today’s cargo, but might also encourage cargo switching from USWC to USEC services (about two-thirds of Asia-US cargo today arrives via the west but a significant share is actually destined for the eastern US).

Switch Up Or Not?

Firstly, the answer may lie with the ports. In order to receive the very largest ships capable of transiting the new locks, there is still a significant amount of infrastructure work to be completed at the USEC ports. Compounded by other issues that carriers face at US ports, the consensus seems to be that carriers may upsize services to the USEC via Panama to around 9-10k TEU first before going further. Secondly, in terms of cargo switching, the move from USWC to USEC is not as clear as it may seem. Logistics supply chains put in place by major retailers, with distribution centres based in the US interior, are likely to be fairly sticky and not instantly so sensitive to unit cost savings in the shipping part of the chain (which may or may not cover the cost of much additional inland transportation).

So, the majority of containerships will be able to transit the new Panama locks when they open. However, the initial impact of the new dimensions on container shipping may not be as obvious or instant as it seems. Project delays or not, it is likely to take some time for the full extent of the impact to be felt.