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Feb.8, 2016

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10 THE JOURNAL OF COMMERCE www.joc.com FEBRUARY 8.2016 COVER STORY THE PANAMA CANAL Authority is shooting to open its third set of larger locks that can handle post-Panamax ships in May, but it doesn't expect the larger locks to attract new services for sev- eral months. In a January interview with The Journal of Commerce, Panama Canal Administrator Jorge Quijano said the canal already has regained some of the services it lost to the Suez Canal over the last three years. Carriers switched to the Suez route so they could use their more fuel-effi cient post-Panamax ships and cut costs at a time when vessel overcapacity has prevented them from rais- ing freight rates. The Panama Canal gained fi ve all-water con- tainers services last year, two for the full year, and three for the peak season, Quijano said. The canal currently handles 33 container services that deploy Panamax vessels with a capacity of up to 4,800 20-foot-equivalent units through the old locks. "I don't expect our customers to immediately move to use the expanded Panama Canal. I expect them to give us a wait and see of maybe three or four months before they start making their major decisions of, 'OK, now I'm going to re-network using the expanded Panama Canal,' " he said. After the initial shakedown period, Quijano expects the new locks to gain two new post-Pana- max services this year and as many as four in 2017. If carriers begin to add larger ships to their services, they may reduce the number of services, said Lars Jensen, CEO of Sea Intelligence Con- sulting in Copenhagen. "I expect them to halve the number of services through Panama," he said in a Journal of Commerce webcast in January. "This means shippers will have less choice." At the same time, Jensen expects the carri- ers that deploy larger ships through the expanded locks to pass some of their cost-savings along to shippers in the form of lower freight rates on all- water services to the East Coast. Dan Smith, a partner with Philadelphia-based transportation consultant Tioga Group, agrees with Quijano's scenario of a gradual ramp-up in new services. "You will get one or two new services by carriers that want to dip their toes into the water this year, but you will see a gradual increase in the size of vessels on the existing services," he said. Weak U.S. import demand means carriers won't want to pay the higher tolls the canal author- ity will charge on post-Panamax ships unless they're full. "If you (a carrier) want to achieve those economies of scale, you've got to wait until the cargo ramps up," Smith said. "The underlying growth of cargo has slowed, and carriers are not fi lling their Panamax vessels right now, so there is actually unused capacity on those services."

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