news

2018

BIGGER SHIPS, BIGGER BUSINESS OPPORTUNITIES

How is the expansion of the Panama Canal bolstering the logistics industry?

Panama has emerged as a prosperous nation, that too without a reliance on oil, and with the highest Gross Domestic Product per capita ($22,788) in Central America. Most notably, the country scores high marks for the completion of the new Canal on June 26, 2016; a project which cost $5.25 billion and now accommodates current generation post-Panamax ships. These newer ships have a greater cargo capacity; they are capable of carrying 14,000 containers, more than double previous maximums.

The project took years of planning and execution, and only after an overwhelming vote in 2006 did work begin. A feat of engineering, the width of the canal has increased from 300 feet to 715 feet. It took 41,000 people to work on the project. The amount of steel used could have built 29 Eiffel Towers. To date, the two new locks and new lane have enabled doubling the Canal’s cargo capacity.

What to Expect:

Impact of the expansion is already making waves. In February, 2017, a new record was set for daily tonnage (1.18m Panama Canal tonnes (PC/UMS). What’s more, LPG and LNG vessels, in addition to tankers, bulk and vehicle carriers have transited the expanded canal since it became operational. In April 2017, the first neo-Panamax cruise ship, capable of carrying up to 4,000 passengers, will pass through the new locks.

The effects of expansion will reverberate even further than Panama. For example, the old canal was thought of as an impediment to ship from East Asia to the East coast of the United States despite it being a lucrative market. Now, the advantages of shipping from East Asia to the East coast,instead of landing on the West Coast and finishing the journey by land, has got ports scrambling to handle of the boost in volume. To name a few, the Ports of Virginia and Charleston are investing millions of dollars in their own infrastructure and logistics improvements to accommodate the additional cargo.

For companies such as ours, supply chain management and logistics will work in tandem with these developments. The result: upgrades and efficiencies, while consistently adhering to principles of cost cutting. Foreign direct investment has nearly tripled since 2009 and the IMF forecasts that the country will continue to grow at nearly 6% a year, the highest among all Latin American countries. ILC anticipates long term changing logistics flows to the US East coast (monthly cargo is already breaking records) as well as many Latin American nations that are dependent on seaborne trade.

Businesses will also prefer to have parts manufactured in new places, then transport them to a central assembly point, such as a Free Trade Zone. Indeed, manufacturing is surging with companies such as 3M taking a lead in Panama Pacifico’s FTZ. The country has in fact been a leader in the creation of such zones and ILC’s experience and know-how in these special parks goes back more than 18 years.

Goods and services meant for export or re-export are exempt from taxation and customs offices are available around the clock to expedite movement and address even employment issues. The general environment in the FTZs and through liberalization of government regulations is very conducive to innovation and entrepreneurship. And it’s all supported by reliable infrastructure which you will notice as you drive down modern highways.

With all these incentives, added to plenty more: the country is stable, has a dollarized economy, and its geographical location is very attractive; you can expect for Panama to become a preferred distribution hub of Latin America, and potentially a future global logistics hub.