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

People & Company News

Jack W. Fisher Passes Away at 73

Jack W Fisher, president of JW Fishers Mfg. passed away at home after a brief illness on February 20, 2015. He was 73 years old.   The JW Fishers business was started because Fisher,

Piracy Still a Big Threat in the Indian Ocean

Underestimating the security risk in the Indian Ocean could put ships in danger once again, says maritime security company MAST Ltd.   “Whilst recent reports

St. Lawrence Seaway Opening Date Pushed Back

Tthe opening date for the St. Lawrence Seaway 2015 navigation season has been delayed following review and consideration of factors and conditions affecting safe

Contracts

More MERUS Rings for MS Rotterdam

Pronomar has installed two additional MERUS rings on board Holland America Line’s MS Rotterdam, this time in the wellness area for the steam generators.   The

Royal IHC Merges Four Units into IHC IQIP

Royal IHC (IHC) has integrated four of its business units – IHC Hydrohammer, IHC Handling Systems, IHC Sea Steel and IHC Fundex Equipment – into one new organization,

Statoil: Johan Castberg, Snorre 2040 Timelines Changed

The licensees in the Johan Castberg and Snorre 2040 licences have decided to spend more time on the projects. “Castberg and Snorre 2040 are two major and important projects in our portfolio,

Finance

Global LNG-Asia Prices Creep Higher on Japanese Demand

Asian spot liquefied natural gas prices edged higher as scattered demand from Japanese buyers and others helped stem the recent decline in prices, traders said on Friday.

Drop in Cocoa Bean Size Worries Ivorian Exporters

Dry weather in top cocoa grower Ivory Coast has caused a sharp drop in bean size and will delay the start of the April-to-September mid-crop by nearly two months,

Wärtsilä, CME Offer ‘Scrubber Finance’

Funding concept promotes installation of scrubber systems by offering financing to shipowners, with returns taken from fuel price spread   In a move intended

Container Ships

IACS Comments on MOL Comfort Report

The International Association of Classifications Societies (IACS) informs it will study the final report issued in Japan by the Committee on Large Container Ship Safety (CLCSS),

Are Megaships Game Changers?

Bragging rights for the world’s largest container ship have changed hands four times in as many months and keep on shifting again, says a report in the Bloomberg.

Port of San Pedro Seeks to Fund Upgrades with European Roadshow

Ivory Coast's second largest port of San Pedro will hold a roadshow in France and Britain next month as it seeks to raise 180 billion CFA francs ($300 million) to fund upgrades,

Logistics

St. Lawrence Seaway Opening Date Pushed Back

Tthe opening date for the St. Lawrence Seaway 2015 navigation season has been delayed following review and consideration of factors and conditions affecting safe

Drop in Cocoa Bean Size Worries Ivorian Exporters

Dry weather in top cocoa grower Ivory Coast has caused a sharp drop in bean size and will delay the start of the April-to-September mid-crop by nearly two months,

Tor Svensen: Europe Must Drive Maritime Sector

Europe has a major role to play in driving the maritime industry forward, said Tor Svensen, CEO of DNV GL – Maritime, in his keynote speech on innovation at the European Shipping Week in Brussels.

Consulting

Caterpillar to Stay in Peoria

After a multiyear study focused on modernizing its global headquarters, Caterpillar Inc. today reaffirmed it will remain in Peoria, Illinois, and revealed a

Wärtsilä, Clean Marine Energy Offer "Scrubber Finance"

Wärtsilä and Clean Marine Energy (Europe) Ltd (CME) today announced the landmark signing of the shipping industry's first collaboration agreement that will provide

GOST to Unveil New Products at MSE Conference

GOST (Global Ocean Security Technologies),announced today that it will highlight its newest commercial maritime products at the 2015 Maritime Security East conference in Jacksonville,

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Maritime Standards Offshore Oil Salvage 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: 0.3687 sec (3 req/sec)