To understand more thoroughly the main factors that have influenced the loss of transshipment load in the pacific coast, we consulted experts in the subject. What are the main factors based on the Logistic Performance index?
During interviews with the 4 interviewees, multiple factors were indicated according to how they are affected. However, we could find 5 main factors that have influence on the slowdown of the transshipment in the pacific coast of Panama:
Pacific cargo movement has slow down
The port upgrades in the region,
Costs charged by the Government to containers passing the dry channel
Changes in the transshipment nets of the shipping lines,
The commercial role of the government.
During the interview with Maritime and Logistic Group – CEO, the transshipment of containers in the Panamanian port system is stuck, not growing at all, as you could see from the data of the Panama Maritime Authority (PMA), from 2012 to 2017. In addition, what has been handled this year 2018 does not reflect anything different.
The only way to motivate the transshipment growth in Panama is for the government to start growing more interest in the transshipment industry, which is the second most important maritime business in the country after the Panama Canal; this could be achieved through a public-private alliance where the government is willing to sacrifice small incomes in favor to generate thousands of jobs, where the government joins efforts with the private enterprise through a commercial alliance
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Panama is the leader in transshipment cargo movement in the Americas with 6,877,8826 TEUs (20´container) moved in 2017, according to official statistics of the PMA, out of which 6,009,562 TEUs correspond to transshipment movements.
If we analyze the first five months of 2018 versus the same period of the last 6 years, we can note that there has been no growth, and that the ports maintain an unstable cycle, with the best year in 2012.
The port upgrades in the region versus Panama. The country counts with a port investment of more than 3.5 billion dollars in port infrastructure for handling transshipment of containers in global port operators, in five world class ports. However, the investments and port upgrades in the region do not stop and Panama slowed down in terms of investment and port expansions.
In the Pacific, Mexico, Guatemala, Colombia, Peru and Chile have attracted multimillion dollars’ investments in global operators (DPW, APMT, PSA, SSA, HPH), looking for important domestic cargo generated in these countries. In the Atlantic, something similar happens, Cartagena (Colombia), Moin (Costa Rica), Caucedo, (Dominican Republic) with important investments in expansions and port upgrades. In the case of Cartagena, it invested in the transshipment market with great success.
The port market of the Atlantic and the Caribbean Evergreen – Export Division Manager, Both Littoral can’t be compare to each other as each littoral have different rules and it does not only depend on the port. In the Atlantic and Caribbean market, it is important to highlight that the transshipment is mandatory as the vessels that cross Canals coming from Asia towards the East Coast of the US. After passing the Canals, they must choose a port in the Atlantic-Caribbean for the transshipment of cargo to the region. As the same
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happens using mother vessels passing through the Panama Canal with the destination to ports of the East Coast of the United States.
The port market of the Pacific - In the Pacific, the transshipment is not mandatory as in the Atlantic. In fact, prior to Balboa’s development, almost the entire cargo moved through direct services.
The transshipment is only done by the big shipping lines with many services in the region. For them it is more a matter of efficiently combining their routes or in alliance with other shipping line to try to cover the small markets with feeders. So that the mother vessel only stop in one or two transshipment centers.
In the Pacific, Panama have two ports and eight piers (Two of them started operations in April 2018) for container vessels, which in 2017 handled 2.986 million of TEUs with substantial low values to its best year in 2012 when it handled 3.303 million of TEUs.
Figure, 1. In the Pacific, the competition is given by Manzanillo-México (2.83 million of TEUs in 2017), at which 35% is transshipment for the Pacific of Central America;
Lazaro Cardenas-Mexico with a Hutchinson Terminal and another one of APMT (1.15 million of TEUs in 2017) with 25% of transshipment mainly for the Central America Pacific market; Buenaventura in Colombia with a terminal of the Port Society, another of PSA one more of APMT (920 thousand TEUs in 2017) with 40% of transshipment for the Pacific of South America, but also with north destinations through the Panama Canal;
Callao in Peru (2.25 million TEUs in 2017) with 20% of the transshipment to the intra-regional market.
As you can see, there are several ports of the Pacific competing with Panama in transshipment, by offering very modern world-class facilities. The port modernization
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happening in the Pacific of Latin America from Mexico to Chile has increased the competition in the transshipment sector because the shipping lines relay on more options and have seen an opportunity to do transshipment. Some of them reduce the transshipment in Panama, which causes no growth due to high costs and lack of the relative government institutions efficiency in processing.
Maersk Line – Asia-Latin America Logistic Operation Supervisor - The costs of the Government on the Transshipment Dry Channel.
Figure, 4. Panama counts on a unique transshipment service in the region, using the Dry Channel, that no other country can offer in the Americas. This consists in downloading the container in a port of the Pacific; sending it by truck-road or railroad to another port in the Atlantic to be uploaded to its destination in the Atlantic of Central/South America, the Caribbean or the United States/North of Europe and the Mediterranean.
Figure 4. Panama Dry Channel
Source: copyrights of Maritime and logistic Group
The Dry Channel is use by the services that come from Asia with destination to all the pacific coast of South America, since using the Dry Channel they can attend the market
Railroad Truck
Railway
Pacific Littoral
Atlantic Littoral
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of the Atlantic and Caribbean without the ship transiting the Panama Canal, then keeping its route to Chile, and returning to Asia.
The dry channel fees applied by the government institutions have been paid by shipping lines in the last years, these costs affect the competitiveness of the transshipment center and the shipping lines try to avoid them by doing transshipment in another country.
Therefore, this decreases the business for Panama, in ports on both ends, Pacific and Atlantic.
Nowadays, the direct cost applied by the State through Customs/MIDA/AUPSA to a refrigerated container coming from South America, disembarking in the Pacific using the terrestrial way (railroad-truck) to move towards the Atlantic and embarking in another port with destination in USA/Europe/Caribbean could reach up to $25.00 in permissions, tax, forms, seals, and others for these three government institutions.
In addition, every container disembarking in the Pacific and embarking in the Atlantic pays to the government an average of $13.00 charged to the port operators, by contract law.
The tariffs that the ports charge to the shipping lines for moving a container are usually low to be able to compete and keep clients.
The State should do its part to attract more transshipment cargo to Panama and reduce costs. For example, the transshipment tax per container is 5.00 USD which is charged by customs to the shipping lines, this charge does not have a reason. Another charge is for the seals of each of the three entities, generating an average of $12.00 for three seals, which could be reduced to only one seal and charge the cost accordingly which could reach as much $1.00 per container replacing the $12.00 charged today.
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This cost that has being paid for years by the shipping lines, for them is not necessary to pay anymore as there are other and new options in the route, such as disembarking in Buenaventura and embarking in another vessel that will go through.
The dry channel of Panama is unique in the region, but the government costs is reducing cargo and competitiveness.
Evergreen – Export Division Manager, - The changes in the routes of the shipping lines, the port modernization of the region has facilitated the shipping lines to change its transport network in the Pacific. As these ports can receive neo-panamax vessels these days, offer better transit times mainly for the refrigerated cargo, and reduce costs.
Figure 5, Between 2006 and 2018, the routes have noticeably changed. In 2006, due to the lack of modern ports in Chile and Peru, these ports received the cargo transshipped in Panama for services arriving directly to Panama from Asia. From here they turned around to return to Asia, this being the service which more cargo provided to Panama and the dry channel.
Figure 5. Routes of the shipping lines (2006) Source: copyrights of Maritime and logistic Group
Figure, 6. Panamax or Post Panamax vessels with destinations to south America, West Coast previously only arrive in Panama, whereas in 2018 ports in South America
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such as Chile, Peru, Ecuador are offering the neo-panamax vessels services from Asia and then come to Panama.
Figure 6. Routes of the shipping lines (2018) Source: copyrights of Maritime and logistic Group
Figure 7. In 2010, there were services with neo panama vessels from Asia to Mexico and then arriving to Balboa-Panama, going to Chile and then coming back to Panama to go to Mexico and then to Asia.
These services have changed and nowadays they first stop in Mexico, go to Balboa, then to Chile and from there return directly to Asia, which reduces transshipment cargo to the ports and the dry channel of Panama.
The competition for the cargo apart from being affected by the tariffs for transshipment movement, and the transit time of the cargo (especially for the refrigerated or perishable cargo), in which Panama is disadvantaged because transshipment time is much longer in comparison with others ports in the pacific littoral.
Figure 7. Routes of the shipping lines (2010) Source: copyrights of Maritime and logistic Group
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These route changes have reduced the transshipment cargo to ports in both oceans, but mainly to the Pacific ports, as it is reflected in official statistics.
Panama Canal Authority – Marine Logistic Engineer. The Government Authorities role and related authorities are influencing directly in the transshipment cargo are Customs, MIDA, UPSA, PMA.
The main task of Customs is to charge import taxes to the cargo and avoid smuggling, amongst other things. It is a task of Customs to facilitate and incentive the transshipment, however, if the country wants to grow in transshipment it is important to check these tasks, modernize the institution and eliminate the continuous delays in the customs offices (when moving a transshipment container from one port to the other).
Eliminating the transshipment tax charged to containers moved by road and eliminating the cost and custom seals and replace it by a unique tax charged directly to the container shipping line.
The main task of MIDA-Quarantine is to avoid the entrance to the country of any plague which could affect the agriculture heritage of the country, it is a task which hardly interferes with transshipment, however as well as Customs it requires of tech upgrades and
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avoiding the seal cost charge to the cargo of quarantine and replace it with the verification and validation of the shipping line seal.
The main task of AUPSA is the control of foods entering the country; the task of verifying food transshipped in Panama to another country is out of place and only adds more bureaucracy and costs to the transshipment cargo, such as permits, seals, and others.
The Panama Maritime Authority is a regulating entity for the maritime activity, the role to incentive the transshipment is imperceptible, even more then it is noticeable the dynamics in the Shipping Registry, activities in domestic ports, and other regulatory activities related with the Auxiliary Maritime Industry.
It is important that the PMA develop a commercial role that helps, in alliance with the private port operators, to boost the transshipment in Panama to be the voice of the industry in the cabinet councils in order that the State/Government eliminates the excess of surcharges imposed by the authorities to the transshipment cargo. To turn the entity into an institution gathering the shipping lines to look for the way to move more transshipment cargo in the benefit of Panama.
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CHAPTER SIX
CONCLUCION
In less than a year we will commemorate the 20 years of the Canal transfer. Those of us who participated in that memorable event can say that Panama has achieved many significant transformations. In 1999, Panama's gross domestic product (GDP) was just over
$ 11 billion. For the year 2017 it already exceeded $ 40 billion, and it is possible that by the end of 2019 it will exceed $ 45 billion, that is, it will have quadrupled.
This growth cannot be attributed to a particular sector, but it should be noted that in those same 20 years the Panamanian port industry evolved from moving a little more than 700 thousand to about 7 million TEU, that is, it multiplied by 10. Thus we can continue listing many growth rates in the maritime sector. However, that growth is little with respect to what it could become. In 1995, when the Assembly included in the constitutional title on the Canal that it would be part of the National Maritime Strategy (MNE), many did not understand what it was about; but even so it was approved by the two regulatory legislatures.
Later, when the Organic Law of the Panama Canal Authority (ACP) and the Panama Maritime Authority (AMP) were approved, the explicit reference to the National Maritime Strategy was again in both texts, and in 2004 the Mireya government Moscoso approved the first National Maritime Strategy by decree. Later, during the government of Martín Torrijos, the strategy was expanded to include the logistic activities that were part of the same value chains, and in 2009 the new version was approved by decree.
The two subsequent governments left the National Maritime Strategy aside and concentrated on developing a National Logistics Strategy (ELN), which was delivered in 2017 and is currently in force. The fundamental fact that I wish to highlight is that while it is true that the National Logistics Strategy 2030 is a milestone in the logistics development
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of Panama, I think we should revisit the National Maritime Strategy and resume many of the objectives and tasks that remained pending for to be able to turn Panama into the maritime country that it must become.
While it is true that Panama is much more than a Canal, the main axis of the value chains offered by Panama is in the services offered to the ship. To the extent that the shipping company receives services at competitive prices and world class, the cargo will come to Panama. And with maritime services we refer to those that range from maintenance, repair, change of crew, piloting and tugs, to financial, legal, provisioning, fuel supply, inspections, etc. We must not forget that a ship is a company whose administration requires all these services in strategically selected places by its operators.
We must and can aspire to be a maritime city of a global nature, attracting ship-owners and ship operators, additional shipyards, and many other services that are offered from other maritime centers globally. In the same way, we must be a center of educational excellence in maritime and logistics careers of worldwide recognition. We must be a model in compliance with international environmental regulations and promoters of compliance with these regulations. We must think about globalizing the services and expertise acquired in all maritime and logistics clusters, so that Panamanian companies operate and manage concessions of ports and logistics parks in other parts of the world, as companies from other countries in Panama do today.
The competition is not easy; the topic of the transshipment tariffs per movement is an example, in Panama the average rate is in 110-80 dollars, whereas our competitors offer between 45-65 dollars. Comparing Cartagena with Panama, Panama is more expensive, as the labor cost has increased significantly in the last two government terms, and does not count with local cargo as Colombia, which is an important income that allows the furnishing of transshipment services at a lower tariff.
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In Jamaica, the transshipment tariffs are very low, as the port is manage by the State and it sacrifices income for jobs. In Mexico, Colombia, Peru and Chile they are low as there is a lot of local cargo. Panama counts with some advantages with the dry channel to attract more transshipment, to disembark in the Pacific and embark in the Atlantic, and is the only country that can offer this option, but this advantage is highly penalized by the charges imposed by the State to this type of transshipment in the customs topic, MIDA and AUPSA.
The shipping companies are always looking for options to lower costs, and to compete for the cargo market, they also make alliances to share and lower costs. If the State/Government does not reach a public/private alliance with the main players in the transshipment business, we will not see this maritime business grow, and it will stay stuck as in the last 6 years or even can start to lose cargo.
Others research study as Notteboom (2006) explained the importance and how the alliance between shipping lines has impact the market. Acosta, 2011, the way that ports are manage and service provided, ports of the Gibraltar Strait.
In other areas, Hoshino, Hiroshi. (2010) in his study about the port competitive in Japan and the lesson learned from the Japanese ports to stay competitive in the Asia market using a cooperation strategic with other ports in the country.
Finally, following the statements of the National Logistics Strategy 2030, we must transform Panama from a place of transit to a center for the production and transformation of goods based on innovation and technology.
What we need, says the National Logistics Strategy 2030 is to take a quantitative and qualitative leap in the institutions that govern the sector, provide competent human resources and budget to develop the necessary laws and regulations, develop the priority infrastructure, including the technological platform that allows to modernize the sector, but,
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equally, it must create the necessary incentives to attract investments. An institutionalist that integrates and develops the potential of our maritime conglomerate, including the Canal. I am sure that the GDP of the country will more than double in the next 10 years
equally, it must create the necessary incentives to attract investments. An institutionalist that integrates and develops the potential of our maritime conglomerate, including the Canal. I am sure that the GDP of the country will more than double in the next 10 years