Xeneta: Container Freight Rates to Plummet after Panama Canal’s Opening?

Image Courtesy: Panama Canal Authority

Opening of the Panama Canal’s new locks may be a boom for Panama, shippers, US/Caribbean consumers and businesses, however, it could be seen as a possibly impeding financial disaster for the carriers, according to benchmarking and market intelligence platform for containerized ocean freight Xeneta.

The new, Expanded Panama Canal promises more transits, potentially doubling the canal’s annual capacity. This results in an increased revenue for Panama while bringing more cargo to the US East Coast and Caribbean ports faster and cheaper.

The existing container arrival data from Asia into the US East Coast – Midwest can be seen below:

Image Courtesy: Xeneta

However, the Canal expansion will change these figures, according to Xeneta. International trade experts such as CH Robinson and Rosemont College’s Professor Andrew Lubin expect that within the year, some 10-14 percent of container traffic from Asia into the United States will be diverted from US West Coast ports to the Gulf and East Coast ports.

“The Neopanamaxes will keep the rates low in order to attract cargo and the direct shipments to the East Coast give the shippers an economically viable option to the West Coast labor unions,” Andrew Lubin said.

This could put pressure on rates as more ships can now compete into the US East Coast, and as the newly arriving fleets of 18-20,000 TEU megaships cause more cascading. Consequently, carriers could drop their rates to attract cargo, Xeneta said.

The cascading has already begun – earlier this week MSC announced they’re re-deploying their 13,000 TEU vessels to their secondary lanes including South America West Coast, West Africa, and India to make room for their four newly-arriving 18-20,000 TEU ships that will complement the Maersk ships they share as part of the 2M Alliance, Xeneta further said.

In addition, the continued low crude oil prices exacerbate the vessel-oversupply. Two years ago, one of the advantages of the megaships was their fuel efficiency, but today’s low bunker prices hurt the carriers more than help them as the 6,000-8,000 TEU ships are kept in service since they can still operate economically against the megaships.

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