Don McKnight presents to the North America Outlook Conference at CILT International Convention 2016

1. Panama Canal Expansion
Impacts on North American Trade
Don McKnight, DAMF Consultants
CILT Transportation Outlook Conference
May 11, 2016
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2. Panama Canal
• Opened in 1914
• Critical element of the global transportation network
– Over 140 maritime trade routes, 80 countries
– 5% of global trade and 12% of U.S. international seaborne
trade
• Facilitates trade between North-East Asia, Europe,
the Caribbean and North/South America
• Not only an alternative route but also a critical
connection for Central and South American
economies
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3. Panama Canal Traffic-2015
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Market Segment Transits PC/UMS Tonnage* Metric Tons of Cargo
(thousands) (thousands)
Container 3,067 115,105 39,517
Dry Bulk 3,263 82,943 116,796
Tankers 2,755 63,253 58,791
Vehicle Carriers 844 48,207 5,059
Refridgerated 963 8,988 3,372
General Cargo 803 9,042 5,754
Passengers 208 8,374
Other 483 4,135 3,520
Total 12,386 340,047 232,809
* Panama Canal Universal Measurement System

4. Principal Trade Routes-2015
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Vessel Trade Route PC/UMS Tonnage Metric Tons of Cargo
(thousands) (thousands)
1.East Coast U.S.- Asia 104,902 83,458
2.East Coast U.S.- W.C South America 38,606 37,204
3.Europe-West Coast South America 24,559 13,848
4.East Coast U.S.- W.C. Central America 20,842 16,348
5.South America Intercoastal 14,803 8,122
6.U.S. Coastal incl. Alaska and Hawaii 12,874 1,872
7.E.C. South America-W.C. Central America 11,964 3,564
8.Europe-West Coast U.S. 10,190 7,029
9.E.C. Central America-W.C. South America 10,187 1,185
12.Around the World 5,876 389
23.Asia-Europe 2,203 454
All Other Trade Routes 83,041 59,335
Total 340,047 232,809

5. Panama Canal Expansion
• In response to 3 main factors:
– Significant growth in Transpacific trade
– Initiatives of shipping lines to improve economies of scale
through construction of post-panamax vessels
– Capacity constraints of existing canal (i.e., number of ship
transits, vessel size)
• Expansion involves: construction of a third traffic
lane and set of locks; deepening and widening of
access channels, Gatun Lake and the Culebra Cut
• Inauguration- June 26, 2016 (2 years behind schedule
and 10 years after decision was made to expand)
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6. Impacts on Vessel Capacity
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Panamax (existing) New Panamax
Draft 12.0 metres (40 ft.) 15.2 metres (50 ft.)
Beam 32 metres (106 ft.) 49 metres (160 ft.)
Length 294 metres (965 ft.) 366 metres (1,200 ft)
TEUs 4,500 13,500 (max.)
DWT 85,000 180,000

7. Impacts on Canal Traffic and Revenue
• Capacity of vessel transits will increase to
16,000 per annum
• PC/UMS tonnage will potentially double to
600,000 per annum
• Traffic increases will be influenced by the
pricing (i.e. toll) policies of the Panama Canal
Authority (PCA) to maximize revenues and to
generate a reasonable rate of return on its
expansion investments ($6 billion (U.S.))
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8. Major Shipping Routing Systems
• End-to end shuttles between 2 continents
– Existing commercial trade routes (resource based)
– North/South America, Europe/Africa, Asia/Australia
• Trans-Oceanic Pendulum Connectors
– Transpacific
– Asia-Europe
– Transatlantic
• Round the World Services
• Transhipment Markets
– Caribbean
– Mediterranean
– South-East Asia
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9. Container Vessel Capacity Trends
• World cellular containership fleet-19.94m TEUs in 2015
(8.5% growth over 2014)
– 60% (est.) of fleet is now post-panamax (pre-expansion)
– Under 10% of fleet will be post-panamax after expansion
• A significant portion of new builds are now Ultra-Large
Container Vessels (ULCVs), i.e. greater than 13,000 TEU
capacity of the expanded Panama Canal
– Currently represent 24% of the total cellular order book
– Will be deployed in the transoceanic pendulum services
(i.e., Asia-Europe, Transpacific)
• Currently significant overcapacity in the world fleet
leading to very low rates and red ink for many carriers
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10. Marine Routing Factors
• Macroeconomic
– Worldwide consumption and production and associated trading
patterns and commodity flows
• Operational
– Supply chain management practices in freight distribution that
are responsive to issues of cost, time-in-transit, reliability of
delivery and associated risks
– Increases in vessel size and associated economies of scale
– Port infrastructure (draft, container handling capability)
– Inland transportation connections and facilities (railroads, inland
terminals, highway network)
• Competitive
– Responsiveness of competing routes to new challenges (e.g.,
expansion of the Panama Canal)
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11. Routing Options between Pacific Asia
and the American East Coast
• The all water route via the Panama Canal
– More cost competitive (even before expansion)
• Intermodal option via West Coast ports (primarily
California)
– Faster transit times
• Impacts of Panama Canal Expansion?
– All water route had already gained considerable market share
(can it gain more?)
– What portion of additional cost savings will shipping lines pass
along to shippers with use of larger vessels?
– Pricing and marketing responses of intermodal option
stakeholders and deployment of ULCVs on transpacific route
– Future increases in Panama Canal tolls
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12. Conclusions
• Expansion of the Panama Canal will have a positive
impact on North American importers and exporters
– Offers a potentially more cost competitive routing that will
elicit a pricing response from alternate routings
• Impacts will mainly benefit the U.S. East and Gulf coast
regions but may be limited by the already high current
Panama Canal market share
• Some limited cargo switching from U.S. West Coast
ports to U.S. East Coast ports will occur. This in turn
could lead to some limited expansion of the hinterland
served by U.S. East Coast ports.
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13. Conclusions (cont’d)
• Panama Canal expansion will lead to more round
the world routings by shipping lines and to
greater use of Caribbean transhipment centres
• Benefits to Central and South America may be
limited due to port infrastructure limitations in
the short term
• Impacts on Canadian ports (East and West)
expected to be minimal
– Halifax may have the most to gain
– Montreal should benefit from expansion of Caribbean
transhipment centres
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