Impact of Panama Canal Expansion on Impact of Panama Canal Expansion on Asia- -North America Container Trades North America Container Trades Asia Andrew Penfold Penfold Andrew Director, Ocean Shipping Consultants Ltd. Director, Ocean Shipping Consultants Ltd. ���������������� ���������������� Panama May 2007 Panama May 2007
Overview - - Tactical and Strategic Perspectives Tactical and Strategic Perspectives Overview • • The Asia- -North America trades are highly dynamic North America trades are highly dynamic - - the share of the share of The Asia different regions has changed rapidly over time different regions has changed rapidly over time • • In the US, attention is focused on providing capacity, dealing w In the US, attention is focused on providing capacity, dealing with ith environmental issues and intermodal problems environmental issues and intermodal problems • • Step back for the Strategic View - - there are major changes there are major changes Step back for the Strategic View emerging, where will we be in 2015? emerging, where will we be in 2015? • • The market will look quite different in 2015 than it does now. The market will look quite different in 2015 than it does now. • • The basic position will be the revitalisation of the The basic position will be the revitalisation of the ‘ ‘all water all water’ ’ option option The outlook will be shaped by intrinsic (container- -specific) factors specific) factors The outlook will be shaped by intrinsic (container and macro- -issues: a volatile mix of uncertainty issues: a volatile mix of uncertainty and macro Panama May 2007 Panama May 2007
Forecast Summary - - what is the outlook? what is the outlook? Forecast Summary • • Strong underlying demand growth will continue but there are Strong underlying demand growth will continue but there are increased risks increased risks • • The risks are macro The risks are macro- -economic economic - - how will the Chinese bubble be how will the Chinese bubble be sustained and what are the implications for container trade and sustained and what are the implications for container trade and ports? ports? • • There are also significant technical changes that will revise the There are also significant technical changes that will revise th e structure of the trades: structure of the trades: - Panama Canal development - Panama Canal development - East Coast port improvement - East Coast port improvement - Intermodal congestion - Intermodal congestion - Environmental problems in California and PNW - Environmental problems in California and PNW • • Container distribution is set to change - - the West Coast will see the West Coast will see Container distribution is set to change much greater competitive pressures much greater competitive pressures Panama May 2007 Panama May 2007
Demand Projections Demand Projections • • Latest OSC projections for North American demand indicate Latest OSC projections for North American demand indicate continued strong potential continued strong potential - - but the forecast range has widened but the forecast range has widened • • The short term outlook to 2010 seems quite robust with a further The short term outlook to 2010 seems quite robust with a further expansion of nearly 25 per cent forecast expansion of nearly 25 per cent forecast • • The core model relates container demand to GDP and the The core model relates container demand to GDP and the indications are for continued growth through to 2020 indications are for continued growth through to 2020 BUT: BUT: • • Sustainability of the model is being questioned Sustainability of the model is being questioned • • How much longer can imports be funded and can the Chinese How much longer can imports be funded and can the Chinese economic bubble continue to expand? economic bubble continue to expand? Financiers increasingly insist on ‘ ‘high risk high risk’ ’ scenarios scenarios - - the position is the position is Financiers increasingly insist on the same (less three- -four years) in North Europe four years) in North Europe the same (less three Panama May 2007 Panama May 2007
North America - - Forecast Container Port Forecast Container Port North America Demand to 2020 Demand to 2020 120 100 80 U E Increased R isk T n C ase 2 illio 60 C ase 1 M 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Panama May 2007 Panama May 2007
Market Share by Region Market Share by Region • • Longer term historic review confirms shifts in port region shares s Longer term historic review confirms shifts in port region share • • Not just the result of Asian acceleration but also transport Not just the result of Asian acceleration but also transport economics. Note: economics. Note: - Intermodal and ship size revolution saw South Pacific take - Intermodal and ship size revolution saw South Pacific take share from Atlantic share from Atlantic - This has now stabilised - This has now stabilised - Atlantic - Atlantic - - especially NY/NJ now lifting share especially NY/NJ now lifting share - This is due to congestion and port/intermodal constraints on - This is due to congestion and port/intermodal constraints on the West Coast the West Coast - There are now economic alternatives and future container - There are now economic alternatives and future container trends will boost these options trends will boost these options This fluidity will continue. Major changes will alter market shares ares - - This fluidity will continue. Major changes will alter market sh probably more significantly in the next ten years probably more significantly in the next ten years Panama May 2007 Panama May 2007
North America - - Market Share by Port Region Market Share by Port Region North America 100% 80% 60% Gulf South A tlantic/Gulf N orth A ltantic South Pacific Pacific N orthwest 40% 20% 0% 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 06 Panama May 2007 Panama May 2007
Future Container Demand by Port Region Future Container Demand by Port Region • • Port shares determined by: Port shares determined by: - Total transport costs - Total transport costs - Capacity availability - Capacity availability - Transit times - Transit times - Local versus intermodal market - Local versus intermodal market • • Some trends in regional distribution: Some trends in regional distribution: - A decline in market share for California - A decline in market share for California - - increased All Water increased All Water and Mexican competition, capacity and environmental limits and Mexican competition, capacity and environmental limits - North Atlantic share lifted - North Atlantic share lifted - - Panamax size increase boosts all Panamax size increase boosts all water services (Suez share falls) water services (Suez share falls) - Pacific NW - Pacific NW - - some increase in share some increase in share Nothing is certain Nothing is certain - - market shares will change market shares will change Panama May 2007 Panama May 2007
North America - - Case 1 Container Port Demand Case 1 Container Port Demand North America by Port Range 2020 by Port Range 2020 120 100 80 U S Gulf C oast U A tlantic S outh E T A ltantic N orth n illio 60 Mexican Pacific U S P acific S outh M Pacific N orth 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Panama May 2007 Panama May 2007
Containers Ship Size Evolution Containers Ship Size Evolution ������� ������ ������� ������ Lloyd’s Register ���� ����� �������� ������� ������������������ ������������������ Panama May 2007 Panama May 2007
Changes in Through Shipping Costs - - the main the main Changes in Through Shipping Costs driver driver • • Cost comparison between 2006 and 2015. Sum of: Cost comparison between 2006 and 2015. Sum of: - Underlying shipping costs (largest possible vessel) - Underlying shipping costs (largest possible vessel) - Stevedoring charges - Stevedoring charges - Canal charges - Canal charges - Intermodal delivery costs - Intermodal delivery costs • • Major changes by 2015: Major changes by 2015: - Panamax from 2015 means 11,000TEU (probably much more) - Panamax from 2015 means 11,000TEU (probably much more) - Key Atlantic ports improve water depth - Key Atlantic ports improve water depth - Ultra Large Container Ships (14,000TEU+) - Ultra Large Container Ships (14,000TEU+) - - some transpacific some transpacific trades and via Suez trades and via Suez - New intermodal possibilities - New intermodal possibilities - - Mexico, expanded BC option Mexico, expanded BC option Two representative sources Shanghai (for NE Asia) and Two representative sources Shanghai (for NE Asia) and Singapore (for SE Asia) Singapore (for SE Asia) Panama May 2007 Panama May 2007
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