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Panama Canal expansion may not help rates

OSLO: July 07, 2016. Xeneta, the market intelligence platform for containerized ocean freight, says the widening of the Panama Canal may undermine rates for a segment already suffering from over capacity and cut-throat competition.

The Panama Canal extension, opened on June 26 (right), is meant to provide vessels carrying up to 13,000 TEU's access to U.S. East Coast ports and inland markets from Asia.

Panama Canal extensionHowever according to Xeneta CEO Patrik Berglund the new short-cut could turn out to be more of a liability than a benefit: “Firstly, the neo-Panamax vessels have to attract trade to this fresh route, and this could initially force them to keep rates artificially low - the last thing the industry needs. Then we have the fact that more ships will be able to compete on the East Coast, potentially pushing rates even lower.

“This will most probably be exacerbated by the newly arriving fleets of 18-20,000 TEU megaships – MSC has four in the pipeline now – causing a cascading of existing tonnage onto attractive routes, like the East Coast. It all spells, what could be, an impending financial disaster for a segment currently defined by consolidation, new alliance-building, and on-going uncertainty,” he added.

A logistics specialist, professor Andrew Lubin from Rosemont College in Philadelphia, supports Berglund’s argument. He said that while 68 percent of current container traffic from Asia to the U.S. East Coast routes via the West Coast, some 10-14 percent could be diverted to Gulf and East Coast ports within the next 12 months.

“Faster transit times and the fact that carriers switching tonnage to the East Coast will now be able to avoid West Coast labor unions will boost vessel numbers and therefore competition,” he explained. “Increased competition has an obvious impact in the market - lower rates.”

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