The consequences could ripple beyond ocean ship – the more container lines are convinced to bring asian exports to the U.S. East Coast via the Panama Canal alternatively of unloading in California, the worse for intermodal rail and the better for truck.
The Panama Canal Authority ( ACP ) is proposing toll changes to be effective January 1, 2020. It announced its prefer changes on June 14, with a public comment period to extend until July 15, after which a decisiveness will be finalized.
Panama Canal locks cater to two different vessel sizes. The original ‘ Panamax ’ locks can handle container ships up to a maximum capacity of around 4,500 twenty-foot equivalent units ( TEU ), arsenic well as smaller and medium-sized dry and fluid bulge ships.
The ‘ Neopanamax ’ locks, which debuted in June 2016, allow for container ships with capacities of up to around 15,000 TEU, ampere well as liquefied natural flatulence ( LNG ) carriers, and 84,000 cubic meter identical large gasoline carriers ( VLGCs ), which transport liquefied petroleum natural gas ( LPG ).
One of the rationales for building the Neopanamax locks was that the function of a lot larger container ships would importantly reduce carriers ’ unit costs, which would theoretically sway them to shift more of their Asia-U.S. volumes to the East Coast via the Panama Canal, as opposed to Los Angeles/Long Beach.
Pricing revisions
The latest toll proposal keeps pricing the like for container ships but expands the commitment program that provides discounts to the highest-volume users.
presently, container shipping users that transit between 450,001 and 999,999 TEU of total capacity in a 12-month menstruation receive a $ 1 per TEU decrease in tariffs for one month ; those with 1,000,000-1,499,999 TEU receive a $ 2 reduction ; and those with 1.5 million TEU or more, a $ 3 decrease.
The fresh proposal calls for the $ 3 decrease to apply to book from 1.5-2 million TEU ; for a $ 3.25 per TEU reduction for customers with 2,000,001-3,000,000 TEU ; and for those with over 3 million TEU, it creates a ‘ Loyalty Plus ’ plan providing a $ 5 per TEU decrease, based upon the act of TEU exceeding 3 million. 
LNG carriers will have to pay more to transit. Photo courtesy of ACP The ACP disclosed that liner customers have saved over $ 95 million in tolls since the commitment platform was established in 2016. There are presently three customers with 1.5 million TEU or more per year in volume, two with 1 million to 1,499,999 TEU, and four with annual capacity between 450,001 and 999,999 TEU.
In contrast to its scheme for container ships, which seeks to incentivize more transits, the ACP is proposing price increases for most other categories.
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The plan calls for tolls to increase 10 percentage for crude and intersection tankers through the Panamax locks and 8 percentage through the Neopanamax locks, plus a variable factor ; 8 percentage for chemical tankers ; 8 percentage for LPG carriers through the Panamax locks and 15 percentage through the Neopanamax locks ; and for LNG carriers, 8.5 percentage when laden, 9 percentage when in ballast, and 8 percentage on the return key theodolite of a round-trip.
Tolls would rise 5-15 percentage for vehicle carriers ; for cruise ships and early passengers vessels, 2-3 percentage for the Panamax locks and 12 percentage for the Neopanamax locks ; and for dry bulkers, 14-17 percentage for carriers of iron ore using the Neopanamax locks and 25-27 percentage for certain vessels ballasting through those locks. There would be no toll increase for bulkers using the Panamax locks ( bulkers now represent the most important vessel category for the master Panamax locks ).
These toll changes mark the second base meter the ACP has revised its price since the expansion visualize was completed. In October 2017, the ACP provided limited backhaul incentives for container shipping customers, while increasing tolls for LNG and LPG ships by 14 percentage and 29 percentage respectively.
The Neopanamax locks were chiefly conceived with container ships in mind. The initial plan of the new locks predated the U.S. shale gasoline boom and the prospects for U.S. LNG exports to Asia, while the volume of VLGCs using the canal to bring U.S. propane to Asia is much higher than expected.
According to the latest figures from the ACP, container ships account for 47 percentage of Neopanamax locks transits, LPG ships ( VLGCs ) for 24 percentage, and LNG carriers for 13 percentage.
Rail and trucking effects
As global trade volumes continue to rise, the combination of proceed Neopanamax locks toll increases for non-container ships and rising incentives for container ships could equate to more boxes being routed to the East Coast. Ships bringing more containers to East Coast ports could steal market contribution away from cross-country intermodal rail shipments of containers from California to the eastern states. 
Deutsche Bank transportation analyst Amit Mehrotra. Photo courtesy of Chris Preovolos/Marine Money Deutsche Bank fare analyst Amit Mehrotra explained during an episode of FreightWaves Radio on June 8, “ We think there are staggering and underappreciated implications for the ‘ middle nautical mile ’ – i, between the container offloading from the ship and the beginning of the final mile. ”
Mehrotra continued, “ Port infrastructure projects are continuing to allow more container ships to call on the East Coast. That ’ sulfur driving an acceleration of the decrease in distance of catch. When the duration of haul goes down, trucking takes more grocery store plowshare of the moves – and we are surely starting to see that.
“ If you look at a company like J.B. Hunt [ NASDAQ : JBHT ], which is an intermodal bellwether, you see a year-on-year decay in the duration of catch in every quarter for the past six quarters, ” Mehrotra continued, adding, “ They ’ ve seen a massive mix chemise benefitting the lower-length-of-haul easterly network as opposed to their transcontinental network.
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“ then, we think there are substantial structural challenges for the intermodal, ” he said, referring to the shift from boxes being unloaded in California and railed east towards boxes being shipped via the Panama Canal to the East Coast and brought to their destination by truck.
“ The tendency in port infrastructure [ on the East Coast ] is undeniable. Savannah is investing a significant amount. In New York/New Jersey, they raised the Bayonne Bridge to allow larger ships to call. And when you combine that with the fact that the majority of the U.S. population actually lives in the East, we think there ’ s a market chemise [ in ocean transport networks ] toward the East – which therefore moves bulk away from intermodal and into hauling. ”
Box rates from China to California (FBXD.CNAW) are not keeping pace with rates to the East Coast through the Panama Canal, which could in part be due to higher demand for the East Coast route.
