Panama Canal extension may deepen sector’s crisis, says Xeneta
Xeneta, a market intelligence platform for containerised ocean freight, believes that increased efficiencies resulting from the Panama Canal extension may deepen the crisis for the sector by undermining rates.
The company said that the increased waterway's capacity after the extension may not be as beneficial as it seems for container ship carriers.
The new sets of locks and deeper, wider shipping channels will double the waterway's capacity of the Panama Canal, enabling neo-panamax vessels to transit for the first time.
But this may be bad for the industry, which is already facing problems with severe over-capacity and cut-throat competition.
Xeneta has seen a significant fall in container rates over the last two years. It noticed a 60% drop in the short-term market average rate for transporting a 40ft container from Shanghai to Rotterdam compared to the rate in summer 2014.
The company has a database of more than 12 million contracted ocean freight rates, which were collected from over 600 major international businesses.
Opened on 26 June by the 9,472 twenty-foot equivalent unit (TEU) Cosco Shipping Panama, the Panama Canal extension was seen as a boon for carriers.
It allows vessels carrying around 13,000 TEU's all-water access from Asia to the crucial US East Coast ports and inland markets.
However, Xeneta CEO Patrik Berglund said that the neo-panamax short-cut could come at a crippling cost.
Berglund noted: "On the face of it improved transit times and two way traffic deliver huge benefits for container carriers facilitating more cargo to the US East Coast and Caribbean ports faster and cheaper. However, there could be real trouble brewing on the horizon.
"Firstly, the neo-panamax vessels have to attract trade to this fresh route, and this could initially force them to keep rates artificially low, the last thing the industry needs. Then we have the fact that more ships will be able to compete on the East Coast, potentially pushing rates even lower.
"This will most probably be exacerbated by the newly arriving fleets of 18 TEU - 20,000 TEU megaships, MSC has four in the pipeline now, causing a cascading of existing tonnage onto attractive routes, like the East Coast. It all spells, what could be, an impending financial disaster for a segment currently defined by consolidation, new alliance-building, and on-going uncertainty."