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Panama Canal - Operations

Ships transit the canal to move between the Atlantic and Pacific Oceans. The volume of ship traffic at the Panama Canal is determined largely by world economic conditions and global trade routes between countries and trading regions. Traffic on the global trade routes during the mid-1990's, for instance, expanded considerably, causing oceangoing transits through the canal also to increase. Between 1989 and 1998, oceangoing ship transits increased 8 percent to 12,924 transits. The volume of cargo transported through the canal by those ships increased 27 percent during the same time period to 195.2 million metric tons (mmt). The average volume of cargo carried by a ship increased about 2,200 metric tons (mt) to 14,863 mt. Revenues generated by those ship transits increased 65 percent from $327.9 million in 1989 to more than $543.0 million in 1998. Both the number of ship transits and cargo carried through the canal increased with

expansion in world trade through the first decade of the new millennium.

Larger ships that transport containers to the United States call on two or three ports for unloading and loading containers. The larger ships carrying containers from an Asian country to the US East Coast would be too large for the Panama Canal. The ships would call on a US West Coast port, where the containers are unloaded and then transferred onto rail cars for an intermodal delivery across the United States to final markets. This service, called the "land-bridge," eliminates an all-water delivery of a container and avoids use of the Panama Canal. Containers land-bridged across the United States from the US West Coast to New York, for instance, save about 7 days and $600 to $2,600, depending on the cargo mix, instead of using the Panama Canal ("Lloyd's Shipping Economist," September 1998).

The efficiency of canal operation is measured two ways: ship transits per day and the average canal water time (CWT) of a vessel. Canal water time (CWT) is a time measurement of a vessel from the moment it is ready to transit the canal until it exits canal waters. The canal waters include those areas beyond the canal locks on the Atlantic and Pacific Oceans and include the breakwater or anchorage areas. Once a vessel enters the first set of locks on either side of the canal, the transit time averages 9 hours. The time waiting to enter the first set of locks increases the CWT.

The maximum allowable capacity of the canal is 37 to 42 ship transits per day. Daily ship transits indicate the effectiveness of ship lockage and vessel speed through the canal waters. The benchmark is a 24-hour CWT. A lower CWT gains efficiency, while an increase is a loss in efficiency.

The CWT can fluctuate with increased traffic volumes, larger ships transiting the canal, and mechanical delays operating the locks. But as transit traffic increases, the CWT will most likely continue to increase - pressuring the PCA to expand the canal while maintaining its present system. In order to finance future canal expansion, the PCA may increase tolls or obtain financing through capital loans. In the past, the PCC financed capital improvement projects through toll-generated revenues.

The transit capacity of the canal, under normal operating conditions, is a function of vessel sizes, lock outages, and direction of transits. Panamax vessels increase CWT because they are limited to daylight transits and one-way passage through the Gaillard Cut and take longer to traverse a set of locks. During daylight hours, the number of ship transits ranges from 10 to 15 per day, depending upon ship sizes. Daylight transits make up less than half of the canal's maximum daily capacity. Lock outages and interruptions in the canal also increase CWT.

By 2005, a major capital improvement program to increase capacity, costing nearly $1 billion, was completed, and the sustainable operating capacity increased 20 percent. The program included widening the Gaillard Cut, augmenting the tugboat fleet, adding locomotives, modernizing the vessel traffic management system, converting the miter gates and rising stem valves to hydraulics, and automating the machinery controls.

As traffic at the canal reaches capacity and transit time increases, ship operators and owners consider alternate maritime routes. To keep the canal competitive with other routes, the PCC conducted several studies to expand the canal's capacity beyond just widening the Gaillard Cut. Once the widening is complete, Panamax vessels were able to pass each other throughout the canal waters, although ships of any size and type still will have to wait through the longer lockage times of Panamax vessels.

The Panama Ports Company (PPC) purchased operating concessions for the ports of Balboa and Cristobal, while the Manzanillo International Terminal, Panama S.A. (MIT), and the Colon Container Terminal, S.A. (CCT) purchased concessions at the port of Colon. Each concession is a joint venture between a Panamanian business and a foreign affiliate. The PPC is a subsidiary of China's Hutchison Port Holding, and MIT is operated by Stevedoring Services of America (SSA) Panama, Inc., affiliated with the Seattle-based SSA and the Motta and Heilbron families of Panama. The CCT is affiliated with Evergreen International S.A., Panama, and Taiwan's Evergreen Group. Each concession allows the respective port operator to invest in terminal rehabilitation and expansion.

The terminal construction and modernization program at PPC's Balboa facility includes 12 "super post- Panamax" quay cranes, capable of servicing the largest containerships being built, 1,500 m of deep-water quay, 50 hectares of container storage, and 28 rubber-tired gantry cranes. This program will allow the PPC to handle more than 1.5 million 20-foot-equivalent containers (TEU's) annually. The modernization program also includes facilities for break- bulk cargo. The PPC's Cristobal terminal's updating will include two Panamax quay cranes (capable of servicing Panamax vessels), new rubber-tired gantry cranes, and a new harbor crane. Annual container capacity at PPC's Cristobal terminal might exceed 300,000 TEU's (Troetsch).

The canal is a preferred alternative for shipowners if the average daily revenue of a vessel's transit through the canal is more than an extra 10-day routing. For example, assume that a 65,000 deadweight tonne (dwt) dry bulk vessel transports 52,000 mt of grain from the Gulf of Mexico to Japan via the Panama Canal at a freight rate of $18.75 per mt. Clarkson Research Studies of London, England, estimated ["Shipping Intelligence Weekly," Issue No. 381, Aug.13,1999] the vessel's average daily revenue to be $7,336. An extra 10-day sailing reduces the average daily revenue of the vessel by 5 percent to $6,975 per day. A Panama Canal transit generates $361.50 more revenue per day for a vessel than the extra 10-day sailing schedule. Although the vessel avoids paying the canal toll by sailing around the Cape of Good Hope, it requires 15 percent more bunkers and revenue distributed over an additional 10 days. Clarkson Research Studies estimated the canal charge to be $85,000. If the goal of the vessel operator were to generate $7,336 in daily revenue by sailing around the Cape of Good Hope, the required shipping rate would have to increase about 3 percent to $19.26 per mt from $18.75 per mt. The shipping rate is the shipper's cost to have the grain transported to Japan.

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Page last modified: 05-07-2011 02:54:57 ZULU