Panama Canal Expansion: Impacts on the Bunker Industry

In 2015, reports indicate that approximately 5 percent of the global trade passes through the Panama Canal. And, in the light of this weekend’s historic opening of the new Panama locks, this percentage is expected to grow in the coming years, as an increased number of Post-Panamax containerships, Capesize dry cargo vessels and specialized large scale gas carriers are soon expected to pass through the new Panama locks.

In dry figures, the new locks provide capacity to handle vessels up to 49 meters wide, 366 meters long and 15 meters deep. Furthermore, vessels may go from 5,000 TEU to 13,000/14,000 TEU.

But what does this shift in maritime shipping mean to the bunker industry?

Being physically on site in Panama itself, physical bunker supplier Monjasa is a globally oriented bunker company with hands-on experience in the Panama market. The firm provides five insights on the effects for local bunker companies.

Overall, we expect more cargo being transported in all segments and that this cargo will be shipped by fewer vessels than we see today. Post-Panamax and Capesize dry cargo vessels will start passing through the Canal and these bigger vessels will obviously result in fewer, yet increased single supply volumes. However, given that some of these ships will now also be able to reach major bunker ports in the U.S., we expect total supply volume to rest the same. Neither do we foresee any particular developments in regard to more ship-owners requesting top-offs in the Canal as barging fees rest relatively high.

The well-known transit waiting time shortens substantially with the expansion of the Canal. Less waiting time prior to transit will force ships to bunker after transit, which may in the end cause vessel delays. Today, most ships experience an average two days transit waiting time, which is partly spent on bunkering. With less waiting time, the bunker companies need to tighten coordination further and more flexibility is needed from both bunker supplier and customers.

The expansion of the Canal increases the number of vessels on longer voyages e.g. traveling to the U.S. East Coast. In fact, reports claim that over the next four years approximately 10 percent of the container traffic will have changed from U.S. West Coast to U.S. East Coast. Increased transits and traffic into the U.S. gulf means changing market conditions for the bunker industry and we will see a slow, yet steady, movement towards a less unequal split on total number of West Coast and East Coast (Balboa Vs. Cristobal) bunkering operations.

Bunker companies with close connections to Caribbean ports, which are able to service larger ships will have a good chance to increase sales. Caribbean ports with possibility of welcoming e.g. Post Panamax vessels such as Cartagena, Caucedo, Kingston and Freeport Bahamas will become increasingly interesting for ship-owners, charterers and operators for taking bunkers. Furthermore, several minor Caribbean ports located close to existing main trade routes are considering ‘digging deep’ to draw bigger ships and create local jobs in the supply sector.

The expected larger vessels and more consolidated shipping companies voyaging in the Canal may affect some local bunker companies negatively. Companies with less organizational structures and capacity may face difficulties in meeting expectations to compliance and safety. Developments towards bigger vessels and more well established ship operators in the Panama Canal might also lead to heightening the bar when it comes to reliability and after sales services, which the large shipping companies regard as a matter of course.