Carriers are rushing to start new Asia to US East Coast services ahead of the opening of the wider Panama Canal, but unless carefully managed, they risk losing more of the East Coast freight rate premium, according to UK-based Drewry Shipping Consultants.
The USD 5.2 billion project to widen the Panama Canal is nearing completion – to be precise, the Panama Canal Authority (ACP) stated it was 89.8% done as of the end of May – with another important milestone reached earlier this month, the filling of the Atlantic side locks. Filling of the Pacific side locks is now underway, at a rate of 37,000 gallons of water per minute. It is expected to take 90 days.
From April next year container ships of up to 13,000 TEU will be able to navigate the Panama Canal, more than doubling the existing maximum size of 5,000 TEU. The opening up of this vital shipping lane to bigger ships will give carriers an extra tool in their box to try and fix the current supply and demand imbalance by providing more trade options in which to cascade ships and deploy newbuildings, Drewry says.
In readiness, carriers are starting new Panama-transiting services to build up their customer base. Since the start of the year there have been six new services created for the Asia to US East Coast trade with all but one of them routed via Panama.
Part of the allure of the all-water option is the sizeable freight rate premium that carriers can charge, which grew larger during the slowdown on the US West Coast.
However, that pricing differential is shrinking now that West Coast operations are normalising and because of all of the additional East Coast capacity.
According to Drewry’s Container Freight Rate Insight, in February the average spot rate for a 40ft container from Shanghai to New York was nearly USD2,800 more expensive than for the same box moving from Shanghai to Los Angeles. By May that gap had shrunk to USD1,700.
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