The Panama Canal is Doing Much Better - 5 Part article

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The Panama Canal is Doing Much Better - Part 1

Posted 22/03/2024

This is part one of an in depth look at the Panama Canal.  More will be printed daily as the information is received.  

Why didn’t the Panama Canal lose money when ship crossings fell?  A water shortage forced officials to reduce traffic, but higher fees increased revenue.  Low water levels have forced officials to slash the number of ships that are allowed through the Panama Canal, disrupting global supply chains and pushing up transportation costs.  But, remarkably, the big drop in ship traffic has not, at least so far, led to a financial crunch for the canal, which passes on much of its toll revenue to Panama’s government.  That’s because the canal authority introduced hefty increases in tolls before the water crisis started. In addition, shipping companies have been willing to pay large sums in special auctions to secure one of the reduced numbers of crossings.

In the 12 months through September, the canal’s revenue rose 15 percent, to nearly $5 billion, even though the tonnage shipped through the canal fell 1.5 percent.  The Panama Canal Authority declined to say how much money it earned from auctions.  At a maritime conference in Stamford, Connecticut, Ilya Espino de Marotta, the canal’s deputy administrator, said the auction fees, which reached as much as $4 million per passage last year, “helped a little bit.”  But even now, during a quieter season for global shipping, auction fees can double the cost of using the canal.  

This month, Avance Gas, which ships liquefied petroleum gas, paid a $401,000 auction fee and $400,000 for the regular toll, said Oystein Kalleklev, the company’s chief executive.  Auction fees are ultimately borne by the company whose goods are being shipped.  The canal’s financial stability in the face of a dire water shortage shows how the people who manage crucial links in global supply chains are adapting as climate change disrupts operations.  It also helps that there are no viable alternatives in Latin America to the canal, an engineering marvel that opened in 1914 and handles an estimated 5 percent of seaborne trade.  Todd Martinez, a co-head for the Americas at Fitch Ratings who analyzes Panama’s government finances said  “The good news is that the drought doesn’t have a terrible near-term impact on Panama’s public finances, because the canal has a lot of pricing power.    Part 2 tomorrow....

https://www.newsroompanama.com/news/the-panama-canal-is-doing-much-better-part-1

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Part 2 of “The Panama Canal is Doing Much Better”

Posted 22/03/2024

 

Part 2 of “The Panama Canal is Doing Much Better”

Why didn’t the Panama Canal lose money when ship crossings fell?  A water shortage forced officials to reduce traffic, but higher fees increased revenue.  However if delays continue for the Panama Canal and the cost keeps rising, shipping companies may find ways to avoid the canal.  Last year, as the canal became backed up, ships that wanted to travel from Asia to the East Coast of the United States began going through the Suez Canal, a far longer voyage that uses much more fuel.  Many vessels are still using a western route from Asia even after the Houthi attacks in the Red Sea forced shipping companies to avoid the Suez Canal and go around Africa.  Mr. Kalleklev said that, after his vessels had delivered their cargo and were empty, they now typically returned to the United States via the Cape of Good Hope.  Though Panama is one of the world’s wettest countries, a sharp drop in rainfall last year deprived the canal of the water it needs for locks that raise and lower vessels into and out of the 40-mile passage between the Atlantic and Pacific Oceans. Climate experts say such water shortages may become more common.

The weather pattern known as El Niño initially causes hotter and drier conditions in Panama, and scientists say climate change may be prolonging dry spells. Last year, there was 1.85 meters (six feet) of rainfall in the Panama Canal’s watershed, well below the historical annual average of 2.6 meters, according to the canal authority.  Rainfall in the watershed was below average in six of the last 10 years, including years that were the second, third, sixth and seventh driest since 1950, the authority added.  To conserve water, the authority gradually reduced passages from a normal range of 36 to 38 vessels a day to 22 by December.  But higher-than-expected rainfall and the canal’s water conservation measures enabled it to since raise crossings to 27 a day.  Though the number of passages is still below normal, the canal is in decent financial shape, analysts said.  Verónica Améndola, an analyst for S&P Global Ratings, expects that the canal’s revenue in the 12 months through next September will be roughly the same as a year earlier, primarily because of the toll increases. S&P Global estimates that the cost of shipping through the canal will rise to $10 a ton from $6 a ton. This is good news for Panama’s government, which relies heavily on payments from the canal and is facing skepticism about its deficit from investors in the international bond market.   Part 3 of “The Panama Canal is Doing Much Better” tomorrow as the news is updated.

https://www.newsroompanama.com/news/part-2-of-the-panama-canal-is-doing-much-better

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Part 3 of “The Panama Canal is Doing Much Better”

Posted 24/03/2024

Part 3 of “The Panama Canal is Doing Much Better” Why didn’t the Panama Canal lose money when ship crossings fell?  A water shortage forced officials to reduce traffic, but higher fees increased revenue.  The administrator of the Panama Canal Authority, Ricaurte Vásquez, indicated that this week the number of transits per day was increased to 27 and that he hopes to continue monitoring the state of the lakes to make other decisions.  The Canal has increased its transits, but he insists that the reservoir on the Indio River will be the most efficient solution.  After a difficult year for the Panama Canal that forced it to restrict the passage of vessels, it is expected that normality will be restored before February 2025.  Cited by international agencies, Vásquez pointed out that in the medium term "all the indications we have received point to a mild La Niña, possibly beginning in the month of March and April, and a greater probability that the intensity of La Niña will increase for the months July and August ," said Vásquez.  In Panama, La Niña is characterized by a rainy season with more rainfall than expected, which if well used would help the Canal.  However, Vásquez does not believe that the maritime industry "can adjust so quickly" to the new reality.  The level of the lakes that feed the Panama Canal has improved and Alajuela has gone from 62 meters in May 2023, the worst record of the year, to 72 meters. 

The canal authority expects to pay the government $2.47 billion this year, down modestly from the record $2.54 billion that it paid last year.  Todd Martinez, a co-head for the Americas at Fitch Ratings who analyzes Panama’s government finances told Newsroom Panama “The good news is that the drought doesn’t have a terrible near-term impact on Panama’s public finances, because the canal has a lot of pricing power.  Canal tolls and dividends were 24 percent of government revenue in 2023, Mr. Martinez said. “But the bigger problem is the government can no longer keep relying on the canal to solve all of its other fiscal problems.”  Faced with the prospect of permanently lower rainfall, the canal authority plans to create a big new reservoir that would supply enough extra water to handle an additional 12 to 15 passages a day. Lawmakers still need to approve the project, which the authority estimates will take four to six years to complete.  Panama has elections in May, but Ms. Marotta, the deputy administrator, said last week that all the presidential candidates had told the authority that they supported the reservoir.  “There’s a great understanding in Panama that life without the canal would be very difficult to deal with,” said Sebastian Briozzo, an analyst for S&P Global Ratings.  Part 4 of “The Panama Canal is Doing Much Better” tomorrow as the news is updated.

Part 3 of “The Panama Canal is Doing Much Better” Newsroom Panama

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Part 4 of “The Panama Canal is Doing Much Better”

Posted 24/03/2024

Part 4 of “The Panama Canal is Doing Much Better” Why didn’t the Panama Canal lose money when ship crossings fell?  A water shortage forced officials to reduce traffic, but higher fees increased revenue.  

Let’s move away from the wet canal and talk about the new dry canal, and we are not talking about the lack of water in the Panama Canal.  Reducing the processing time by up to 25% will help speed up the transshipment of merchandise through the dry channel.  Rodolfo Samuda, technical secretary of the Logistics Cabinet, said that with the formalization of the dry channel, the cargo transportation area will be extended to other areas such as the Southern Corridor to streamline the operation between the airport and the ports.  With the challenge of the water crisis that the Panama Canal has faced since mid-2023 and which has generated a progressive reduction in the daily transit of vessels, the transshipment of merchandise via land that was already operating in the country as it is a logistics hub, is taking on more value, by becoming an alternative for shipping companies to continue taking into account the operation in Panama.  Shipping companies can unload containers at ports on either the Pacific or Atlantic side and transfer the cargo to other port terminals in the country by land with trucks or by rail and from there continue to other destinations in the region again by boat. 

However, this operation encountered several obstacles such as excessive paperwork, the lack of digitalization of processes and even the restriction on the hours of offices and public entities that operate in ports, many until 4:00 pm, when There is a need for them to operate on rotating schedules so that there are 24-hour facilities, described Antonio García-Prieto, vice president of the Logistics Business Council, during a discussion on the formation of the Dry Canal.  Another problem is that the capacity of the port infrastructure is insufficient and modernization of the equipment is required, García-Prieto added.  For the businessman, the officialization of a dry canal, last week in the Cabinet Council and subsequently the publication in the Official Gazette of the decrees to legalize this system and create new primary and secondary customs zones, is a step in the right direction, but follow-up must be done so that all the required measures are carried out.  The Minister Counselor of Private Investment Facilitation, José Alejandro Rojas, after giving a historical dissertation on Panama's vocation since the time of the Spanish crown, as a dry channel between the Atlantic and the Pacific, said that the measure to regulate and to make this operation official is to apply measures to reduce by between 20% and up to 25% the delays recorded in merchandise transshipment operations and the entire process that entails.  “We will seek to simplify processes, digitize procedures and standardize the entire merchandise transshipment operation,” said Rojas.  He specified that regarding the schedule restriction, an analysis is being developed to extend operations both in public entities and in private companies related to the operation of land cargo.

“The decrees that were approved will allow the regulatory framework to simplify the treatment of merchandise and expand the primary zone to interconnect public and private assets, economic zones, ports, airports, highways, among others,” he added.  Specifically, Cabinet Decree Number 13 of March 13, 2024 creates the Multimodal Dry Channel for Transshipment of Goods of the Republic of Panama, called Omar Torrijos Herrera, and establishes in turn the formation and expansion of the primary and secondary zones within customs jurisdiction to streamline land and rail cargo transportation processes between ports and airports. Rojas assured that more cargo capacity will be able to move along the roads and highways.  “By reducing times between 20% and 25%, more cargo can be moved, and we are creating the conditions for shipping companies to bring more containers to the country and to generate greater dynamism in transshipment by road and rail,” said Rojas.  Rodolfo Samuda, technical secretary of the logistics cabinet, explained that among the new areas that will be expanded is the Southern Corridor to more quickly connect the transfer of cargo from the ports to the Tocumen International Airport and take advantage of cargo operations on specialized aircraft and passengers in the bellies of these aircraft.  “It will give agility to the logistics platform and in turn decongest the capacity of some services that are not provided due to the difficulties of the Canal,” Samuda added.  He explained that part of these new areas that are expanded for transshipment operations and primary customs zones are the entire area of the PSA port, Panama Pacifico, in addition to the Southern Corridor, Colón, and the entire Alberto Motta highway. 

Part 5 of “The Panama Canal is Doing Much Better” will complete tomorrow.  Stay tuned for the final episode in this 5 part series.  

https://www.newsroompanama.com/news/part-4-of-the-panama-canal-is-doing-much-better

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Part 5 “The Panama Canal is Doing Much Better”

 Posted 25/03/2024

Part 5 The final piece on “The Panama Canal is Doing Much Better” Why didn’t the Panama Canal lose money when ship crossings fell?  A water shortage forced officials to reduce traffic, but higher fees increased revenue. 

We are continuing our talk about the Dry Canal today, the trucks and train and getting the containers from one side of the country to the other to ease the wet canal shipping problems of late…….“The expansion of the primary areas will be complemented by the digitalization of processes and the extension of schedules at ports and customs so that the transshipment operation is easy and agile.”  For the representatives of COEL, it is essential to follow up on this proposal so that when the new government that will be elected on May 5^th enters, the progress made in terms of streamlining the transshipment of merchandise is not regressed again.  Between January and February, transshipment activity in the ports grew 19.5% to add 1.33 million TEUs (20-foot containers) against the 1.11 million TEUs registered in the same period of 2022.  In 2023, the number of containers being transshipped in Panamanian ports closed with a drop of -3.2%, to total 7.32 million TEUs moved.  Taking into account all types of operations, Panamanian ports moved a total of 8.31 million TEU last year, which represented a decrease of -2.4%, or the equivalent of 202,129 fewer units, compared to the previous year, when reached the figure of more than 8.51 million TEU in 2022.

The construction of the reservoir on the Indio River is the most efficient solution for the Panama Canal, the administrator of the interoceanic waterway, Richard Vásquez says.  He maintained that, for more than 17 years, the Panama Canal Authority (ACP) has worked with the communities in that area and understands that a reservoir there has social and economic challenges.  Vásquez explained that to guarantee sufficient water for the operation of the Canal, one cannot depend on rain. The long-term solution is to define the Canal's hydrographic basin and build reservoirs.  “We have alternatives and we will continue to postulate that the Indio River is the most efficient, fastest and least complex option from an engineering point of view, but like any other solution, it has socioeconomic and political complexities,” Vásquez remarked.

Maritime Chamber: The management of water resources for the Canal and the population is urgent.  The union presented the Country Maritime Vision 2024-2029 that will be delivered to the presidential candidates, in which they propose proposals to maintain and improve the competitiveness of the sector that contributes $21,210 million to the economy and nearly 110 thousand direct and 320 thousand indirect jobs.  Panama's maritime and logistics industry runs the risk of being perceived as inefficient and expensive, which endangers the hub's competitiveness.  Much of this perception is due to recent events such as the water crisis that has forced the restriction and reduction of the number of transits in the Panama Canal, a situation that has changed the configuration of the routes of many shipping companies.

This is stated by spokespersons from the maritime sector who presented a proposal to recover the competitiveness of the sector, update legislation, modernize activities with digital transformation and raise the challenges of the industry that must be addressed together with the next Government, so the document will be delivered to the presidential candidates.  “A firm political will is needed for solid and consistent management, capable of facing socio-political ups and downs and achieving concrete and lasting results. We must collectively aspire to become a first world country. This is not a criticism of what we have been, but rather a call to be even more ambitious in our search for excellence as a relevant nation in international trade,” said Yira Poyser, president of the Maritime Chamber of Panama.

Given the water crisis that the country is experiencing due to the prolonged period of drought and the impact of the El Niño phenomenon, Yira Poyser said that they support the solutions presented by the Panama Canal, such as building a reservoir on the Indio River, but admits that it has been lacking. political will to proceed as soon as possible.  “At this point we should be in permanent session to look at this issue of the Canal water crisis,” he said.  In the document Maritime Country Vision , the union proposes that the bill that establishes the limits of the Canal's hydrographic basin that includes the Indio River be approved.  In addition, it proposes that actions be institutionally coordinated to quickly develop the multipurpose reservoir project in the Indio River basin.  In the infrastructure part, the Maritime Chamber proposes that it is necessary to define the construction of water treatment plants for the metropolitan area that are fed by the Bayano reservoir to reduce the pressure in the Chilibre plant (Federico Guardia).  The need to implement a program to reduce water loss by repairing leaks in the distribution network is emphasized.

Another proposal is the alternative of installing desalination plants as an option to supply nearby communities. “This measure is proposed to prevent the depletion of existing reservoirs.”  Juan Carlos Croston, former president of the union, maintained that the impact of the reduction in transits in the Canal has harmed the auxiliary maritime industry since there are fewer ships that pass through the interoceanic waterway, which means less provision of fuel to supply, less food, as well as a reduction in the services and others that these companies provide.  While the other side of the coin is that transshipment and the activities of some ports have been energized, given the decision of some shipping companies to unload containers to send them overland by road or rail between one port and another.  What in his opinion is a short-term solution but is not permanent, since maritime transport is more competitive both in time and cost.  “Although Panama is providing solutions to customers with land transshipment of cargo, long-term solutions must be sought,” Croston insisted, pointing out that measures are urgently needed to address the water crisis both for the provision of water for the Canal and for the population in general.

Spokespeople for the maritime industry indicated that since this is an election year in Panama, it is crucial that the next government places the sector among its priorities.  Croston stressed that it is a conglomerate that contributes 31% of the country's gross domestic product, with an equivalent of 21,210 million dollars, a generation of 109,406 direct jobs that represent 30% of the country's formal jobs and an impact of more than 320,317 indirect salaried jobs in general.  It admits that foreign trade is being affected by the climate crisis, deglobalization, limited capital flow, geopolitical changes, currency devaluation and other factors.  herefore, he considers that Panama must be on par with other countries like Singapore and not be left behind, which is why it is necessary to have a medium and long-term strategic vision that allows the country to be elevated to first world status.

Hence, they propose the Maritime Vision 2024-2029 with six pillars of action to be implemented by the next government. Strengthening the regulatory framework; promotion of inter-institutional and union coordination; incorporation of digitalization and technology; optimization of infrastructure and connectivity; management of socio-environmental impact and promoting education.  “Given the strategic relevance of the Canal, which affects both the economy and human well-being, it is a central element in the Country Maritime Vision 2024-2029. It is not possible to think about the development of the maritime sector without addressing the strategic issues for the Canal that ensures its operational continuity, sustainability and competitiveness,” indicates the document presented by the Maritime Chamber.

https://www.newsroompanama.com/news/part-5-the-panama-canal-is-doing-much-better