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Canal expansion may not benefit iron ore, coal

Keywords: Tags  Panama Canal, Edward Coll, breakbulk, Panamax, post-Panamax, Capesize, iron ore, coal AIIS


NEW ORLEANS — While the volume of container shipments to the United States is likely to increase as a result of the Panama Canal expansion, dry bulk shipments, such as iron ore and coal, could gain little or no traction due to higher fuel rates, according to one industry analyst.

Upon the expected completion of the Panama Canal expansion in 2015, container volumes are expected to go up as much as 12 percent (amm.com, Jan. 20, 2012), and U.S. ports have been scrambling to upgrade facilities and dredge deeper channels in order to meet the new demand.

However, some have cautioned that commodities shipped in bulk will see minimal benefit because being able to put more product on a vessel will be offset by higher fuel costs, panelists said during a canal expansion session at the Critical Commodities Conference in New Orleans hosted by the American Institute for International Steel and the Port of New Orleans.

"In order to start looking at the effect on dry bulk shipments, we’ll look at the ones that move in volume: grain, iron ore and coal," said Edward Coll, president of Phoenix Bulk Carriers’ U.S. operations, a division of Bulk Partners Ltd. "The problem is that they didn’t consider fuel consumption (when building post-Panamax vessels)."

The general expectation is that once the canal expansion is completed, post-Panamax vessels will be able to carry heavier loads, and shippers will save on such costs as insurance, fuel and labor due to being able to ship using one vessel rather than multiple vessels.

However, Coll said, fuel costs make up some 89 percent of operating Capesize vessels, which are larger than Panamax vessels. Panamax vessels—which, unlike Capesize vessels, can fit through the canal—have estimated fuel costs of 68.5 percent of a vessel’s operations, while post-Panamax vessels have fuel costs of some 76 percent.

"If you do a calculation on ships going through Panama on a deeper draft, it’s hardly any difference ... since the fuel consumption is so high and we don’t even know what the Panama Canal will charge on canal dues," Coll said, adding that the industry will continue to use Panamax vessels because of their reliability. "If you do a calculation on ships going through Panama on a deeper draft, you’d save $1 or $2 (per ton) at most—it’s not a lot."

For consumers looking to ship goods to such places as China, "very few ports in China can take ships larger than Panamaxes anyway," he added.

A potential bright spot for post-Panamax vessels, however, is "top off" locations, which allow a vessel to be filled with cargo for their particular drafts then moved to a location with a deeper draft where it can be filled to capacity.


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