Panama Canal Expansion May Worsen Panamax Surplus: Analyst

Posted by George Backwell
Tuesday, April 29, 2014
Image courtesy of Drewry Maritime Research

The continuous cascading of surplus Panamax vessels into North-South trades is still contributing to over-capacity, and the problem is likely to get worse when the Panama Canal’s widened locks are opened at the end of 2015, according to the latest edition of Drewry Container Insight.

MSC’s recently announced service between Asia and West Africa deploying 10 ships averaging 4,000 teu underlines a growing difficulty for North-South trades. Surplus Panamax vessels between 4,000 teu and 4,999 teu are still keeping charter rates low, making it easier for competing carriers to penetrate the markets more deeply, regardless of need.

Only four of the ships deployed in MSC’s Africa Express service have so far been identified, but as they are all chartered, the inference is that this is one of the drivers behind it.

If so, others are likely to follow, and the problem will increase dramatically once the Panama Canal’s enlarged locks are opened at the end of 2015, when many more Panamax vessels will become surplus to requirements.

In this respect, the progressively delayed expansion of the Panama Canal – from mid-2014 to end 2015 – has given North-South routes a welcome reprieve, even though it has cost Panama Canal users dearly.  At present, around 150 vessels between 4,000-5,000 teu still use the canal between Asia and East Coast of North America alone, and another 58 are deployed in services between Europe/West Coast of South America, and between East Coast of North America/West Coast of South America, many of which need to be replaced by larger vessels.

Ocean carriers desperately need more economies of scale than are available with Panamax ships to turn losses into profit, as evidenced by Evergreen’s decision last month to route more cargo from Asia to the USEC via Suez instead of Panama.

Another 377 vessels between 4,000 teu and 4,900 teu are currently employed on routes not passing through the Panama Canal, or laid up, so the transfer of just a small proportion of the remaining 258 vessels currently using the Canal would cause a shock to the system

Some of the surplus will be scrapped, and ocean carriers clearly see this as part of the solution. Nineteen vessels between 4,000 teu and 5,000 teu were already scrapped in the first three months of this year, compared to just seven over the whole of 2013, and one at the very end of 2012.

The problem here is that the average age of ships in the sector is only 8.5 years, with 73% of them being less than 11 years old (see Table 1). As many of ships will be depreciated over 15 to 20 years, this means that much book value will have to be destroyed, which many shareholders will find hard to accept. Some owners will be looking to re-engine the youngest vessels, therefore, or even jumboize them.

Total vessel capacity of the Panamax sector is 2.8 million teu, 16% of the total cellular container vessel fleet. If half of this capacity were to be scrapped after the Panama Canal is widened, the current over-capacity would disappear.

In the meantime, more will be laid up unless alternative deployment can be found. Thirty four vessels between 4,000 teu and 4,999 teu were inactive in the middle of April, compared to 40 at the beginning of the year.

Drewry's view
The opening of the Panama Canal’s enlarged locks at the end of 2015 is likely to lead to a massive surplus of Panamax container vessels between 4,000 teu and 4,999 teu, many of which will have to be scrapped regardless of age. It will also be further bad news for North-South trades not using the Canal.
 

Source: Drewry Maritime Research: 'Container Insight'

 

 

Maritime Reporter March 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

BAE Systems to Expand San Diego Shipyard

BAE Systems announced it will invest approximately $100 million to expand drydocking capabilities at its San Diego shipyard.   The investment, which will include

TDDCL Seeks Input for New Repair Yard

Trinidad Dry Dock Company to develop new ship repair yard at Port of Spain; company requests Expressions of Interest for Environmental Impact Assessment and Geotechnical

NORDEN CEO: Bulk Market Challenges to Continue

Klaus Nyborg, interim CEO at Denmark-based dry bulk and product tanker shipping company Dampskibsselskabet NORDEN A/S, expects difficult dry cargo market conditions

Contracts

UK North Sea Workers Give "Overwhelming" Support for Strike

Trade unions Unite and GMB said members working offshore in Britain's North Sea oil and gas industry had shown overwhelming support for industrial action in a consultative

Two ASD Tugs Delivered to URAG

URAG has taken delivery of two ASD 2411 Tugs to add to its existing fleet. Named Brake and Perfect, the new vessels have joined their sister ship Prompt in the

New Workwear Lifejacket Introduced

Ocean Safety has introduced a new range of workwear lifejackets.   The new Kru Workwear range completes Ocean Safety’s lifejacket offering, providing a wide choice

Finance

NORDEN CEO: Bulk Market Challenges to Continue

Klaus Nyborg, interim CEO at Denmark-based dry bulk and product tanker shipping company Dampskibsselskabet NORDEN A/S, expects difficult dry cargo market conditions

Turkey Maritime Sector Alive & Kicking

Located on the periphery of two great continents, Turkey has benefitted from being in a favored position right at the center of an assertive and fast growing economic area.

Advanced Drillships a Burden for Owners as Business Slows

Not so long ago, advanced drillships costing more than half a billion dollars each and capable of operating in ever-deeper waters practically guaranteed big profits for oil-rig operators.

Container Ships

Mediterranean Rescue Operations Strain Shipping

The Wall Street Journal ran a story yesterday describing how the increasing number of seaborne migrants making the journey from Africa to Europe has not only

Hamburg Süd Christens Third San Class Ship

Hamburg Süd christened its third container vessel in the new San class yesterday, officially naming newbuild San Vicente at the Cuenca del Plata terminal in Montevideo.

Asia-Europe Box Rates Fall Almost 6 pct

Shipping freight rates for transporting containers from ports in Asia to Northern Europe fell 5.5 percent to $586 per 20-foot container (TEU) in the week ended on Friday,

Logistics

Baltic Sea Index Down as Weak Demand Hits Vessel Rates

The Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry bulk commodities, fell on Friday as lack of demand took a toll on rates for most of the vessel segments.

Soo Locks Open for Great Lakes Shipping Season

At 12:01 a.m. on Wednesday, the U.S. Army Corps of Engineers officially opened the Soo Locks for the start of the 2015 Great Lakes shipping season.   The locks at Sault Ste.

Plans in Place to Test Intermodal River Transport

The Paducah-McCracken County Riverport Authority and Ingram Barge Company has announced plans to assess the viability of Intermodal River Transportation, utilizing

Consulting

Holland America Line Ships Score 100

On recent routine United States Public Health inspections (USPHI) conducted by the U.S. Centers for Disease Control and Prevention, Holland America Line’s ms Statendam,

Princess Astrid visits DP World

Antwerp Gateway, managed by DP World (one of the largest container terminal operators in the world) is a significant contributor to the success of the Port of Antwerp.

LOC Group Announces Two Appointments

Global marine engineering consultancy LOC Group (London Offshore Consultants) announced appointments in two new positions; John Quarrington has joined the company

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Navigation Offshore Oil Pipelines Ship Repair Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1840 sec (5 req/sec)