January 16, 2017

16/01/2017: New Panama Canal expansion sees grain transportation costs tumble

by Andrew Wilkinson, Milling and Grain

The long-awaited Panama Canal expansion opened earlier this Summer with a ceremonial ship passing through the waterway

Based on extensive research including more than 100 studies on the economic feasibility, market demand, environmental impact and other technical engineering aspects, the Panama Canal expansion involved the construction of a ‘Third Set of Locks’ that will now allow larger ships to pass through the famous canal.

The project, costing more than US$5 billion and lasting nine years, boasts a wealth of new features including improved water supply, updated navigational channels and new Pacific and Atlantic lock complexes with eight rolling gates on each side.

The new set up is expected to be particularly beneficial to the ships that were previously not able to traverse the Panama Canal, as the container capacity per vessel has now expanded from 4,400 to 12,000 containers per vessel; with this almost threefold increase with some sources predicting that fuel costs could be reduced by as much as 16 percent.

“The Canal is a vital trade route for all grains and other agricultural commodities that are shipped from the US Corn Belt to Asia,” said USGC Chairman and Nebraska farmer Alan Tiemann, who attended the canal’s opening ceremony.

“In fact, with the completion of this project, it is estimated that the cost to transport grain between those two points will drop significantly.”

The largest expansion for the Canal in nearly a century

From its inception, the intention of the multibillion-dollar plan included the construction of a new set of locks to allow the passage of wider, longer and much heavier cargo ships.

“The Panama Canal’s expansion and resulting decreases in shipping costs and time will improve competitiveness of US grains in growing markets,” stated Tiemann, adding that, “This will help US farmers gain access to new markets and continue to expand sales with buyers in our established markets who want more efficient shipments of grain.”

While the exact impact of the Canal’s expansion on the global grain trade still remains uncertain to a certain extent, the Canal’s ability to handle Capesize vessels will certainly create greater opportunities for the export of grains and other commodities. That should raise basis bids on number of users alone, as there will be more competition for the grain.

Third highest ever annual tonnage
So how has the Panama Canal faired in its first months following the expansion project? Well according to its most recent annual report, the waterway has recorded the third-highest annual tonnage in its 102-year history in 2016, and as the new section of the canal only opened in June, these figures only look set to rise in the coming years.

During the 2016 fiscal year, which went from Oct. 1, 2015 to Sept. 30, 2016, the Panama Canal Authority recorded 330.7 million Panama Canal tons (PC/UMS). During the year a total of 13,114 vessels sailed through the canal, including 238 Neopanamax vessels taking advantage of the newly opened Expansion project.

In fact, Neopanamax vessels accounted for approximately 18.2 million PC/UMS. “Despite the international shipping downturn this past year, we recorded one of the highest annual tonnage figures since the opening of the original Canal 102 years ago,” stated Jorge L. Quijano, Panama Canal Administrator, who qualified his statement by adding that, “This latest success reinforces the continued strategic importance of the route and the growing value that recent investments in the Canal will bring to the maritime industry.”

However, although the nexpanede Panama canal appears to already of benefit to shipping industry, the grain price gains are predicted to be very limited at best. This is the case as, according to Jay O’Neil, agricultural economist at Kansas State University’s international grains program, not many foreign grain buyers can handle the bigger ships or the larger cargoes.

“How many of our customers want an 85,000-ton cargo? Not that many,” he imparted in a recent interview with Farm Futures. But will the project have any bearing on the overall cost of shipping?

Read the full article HERE.

The Global Miller
This blog is maintained by The Global Miller staff and is supported by the magazine GFMT
which is published by Perendale Publishers Limited.

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