Friday 10 January 2014 Lloyds List by Damian Brett THE Panama Canal expansion project has hit the headlines again as a wrangle emerged between the Panama Canal Authority (ACP) and a consortium building and installing the canals third set of locks. While there is no doubt that the canal expansion will be completed, even if it is delayed, the attention that the dispute has garnered has again highlighted the importance of the project. The fact that containerships of up to 13,000 teu will be able to transit the transport artery, compared with the current limitation of around 5,100 teu, means ports up and down the US east coast are gearing up to handle larger ships and extra volumes. Both shippers and shipping lines are hoping to benefit from the increased economies of scale that the larger ships will bring. But although the widening of the canal represents an opportunity for many companies, for some, it is set to cause further problems. One such area of the shipping industry that could be affected negatively by the project is the panamax vessel segment. This vessel type, with a maximum beam of 32.3 m, gained its name from the fact that it is the largest size of vessel that can transit Panama Canal because of the width restrictions of its locks. In the container sector, this size of vessel has been under pressure for some time. Data from Lloyds List Intelligence shows that for much of last year the panamax vessel segment had the largest level of inactive capacity as ships of that size could not find deployment. In fact, the Lloyds List Intelligence figures show that the panamax sector had the highest amount of inactive tonnage in 39 of the 52 weeks in 2013. The demise in the popularity of this size of vessel is also reflected in Lloyds List Intelligences delivery data. In 2010, 373,024 teu of panamax capacity was delivered. Last year, that figure slipped to 271,011 teu , a decline of more than 100,000 teu over the four-year period. Although some other segments have also seen deliveries decline, none have experienced a greater decline in total teu capacity delivered over that timespan. The panamax sector has also seen its percentage of the overall fleet drop over the last few years. In 2008, panamax vessels represented 26.8% of the overall fleet. By 2012, that figure had slipped to 24.4%. Panamax vessels also dominated the scrapping tables in 2013, with 289,023 teu of capacity scrapped. The cause of problems faced by the panamax fleet is well documented - the ultra-large containerships now being deployed in the main east-west trade lanes have caused post-panamax tonnage to be transferred onto the trade lanes traditionally served by panamaxes. Lloyds List Intelligence container analyst Sarah Bennett remarked that while some of the affected panamax fleet had found deployment in other trade lanes, the regions where these vessels could be deployed i s limited by the size of vessel some ports can handle. Older, less fuel-efficient vessels tend to be the first to be either l aid up or scrapped by the owners. The weakening of demand growth over the last few years has of course also contributed to the issues faced by the panamax fleet. At present, the panamax sector is helped by the limitations of the Panama Canal locks, but what happens when the expansion is completed? It is clear that shipping lines will use larger ships through the expanded canal - Hyundai Merchant Marine recently announced that six 10,000 teu newbuilding vessels it will charter from Zodiac Maritime are intended for a transpacific canal service. The issue has attracted the attention of shipbroker Braemar Seascope, which is analysing the future of the panamax box fleet when the canal expansion is completed. Braemar Seascope head of containers Nick Hubbard said there was no doubt that the panamax fleet would suffer further with the opening of the canal. He said the logic for operators to switch to larger vessels was easy to understand. Braemars estimates showed that a 95,000 dwt vessel would offer slot cost savings of as much as 100% compared with panamax vessels. Braemar Seascope container market analyst Jonathan Roach added that the panamax fleet totalled 650 vessels. Of that number, around 110 were on dedicated loops from Asia to the US east coast through the Panama Canal. However, there are still opportunities for the panamax fleet and market trends could increase their viability. Mr Hubbard pointed out that charter rates for a 9,000 teu post-panamax vessel were around $40,000 per day, but if this increased it would lessen the slot savings carriers would be able to gain by using this size of vessel instead of panamax ships. Mr Roach added that panamax vessels were quite versatile and were used all over the world on both coastal and regional services. He said 55 panamax ships were used in intra-Asia services and 62 were in use on loops between north and Southeast Asia and Oceania. There are further opportunities for cascading onto other services. Mr Roach said initial research showed that on many loops there were only one or two calls where port restrictions inhibited the use of panamax vessels, for instance Bangkok in Thailand, and Ho Chi Minh City in Vietnam. However, many ports will dredge and upgrade facilities in the coming years to handle larger ships and new ports will be built near existing facilities, such as Laem Chabang in Thailand as an alternative to Bangkok. That said, there will of course be ports that do not upgrade and the size of vessel they can handle will continue to be restricted, according to Mr Roach. Ms Bennett said there were also port limitations in Africa that would provide some protection for the panamax fleet. Specialist wafmax vessels have capacity of 4,500 teu and are the largest ships able to call at many West African ports, she said. The world fleet of 22 wafmaxes offers greater efficiency, based on faster weekly direct calls between Asia and West Africa. However, Mr Hubbard said there was also a limitation on which loops panamax vessels could be deployed on because of the number of port calls on certain services - there are as many as 18 calls per rotation on some intra-Asia services. With that many port calls it is more cost-effective to use smaller vessels. Mr Roach said there would also continue to be the opportunity to deploy panamax ships through the old locks on the Panama Canal, which would continue operating even after the expansion was completed. Mr Hubbard said another factor that should be considered was demand growth. If we see macro growth returning on the Asia-Europe and transpacific trade lanes then there is a chance that the extra tonnage will be absorbed. Many of the mega size container vessels that have been introduced were currently calling far too many ports - some of them are calling 12-13 ports, it doesnt make sense, he said. They are only doing so in order to suck up cargo so they can sail full and use up excess capacity. If we get macro growth a lot of these trades will reduce the number of ports of call, which will in turn increase the need exponentially for smaller type vessels, including the panamaxes. So while it appears there will new opportunities for the panamax fleet in future, both Mr Roach and Mr Hubbard agree that vessels of that size will need to be scrapped to improve the supply-demand balance. There are around 120 panamax vessels over 15 years old and 80 of 21 years and above, according to Mr Roach. Mr Hubbard said: Logically, the 15-year-old ships will go, so that brings the number down to 500 and that is a rather more manageable amount. As well as age, the fuel consumption performance of vessels will also be taken into account when deciding which vessels to scrap. Rickmers Trust Management chief executive Thomas Preben Hansen recently remarked that the less fuel-efficient tonnage that was unable to slow steam should be scrapped first. If you have a fairly modern ship, albeit designed for higher speeds, you can do a lot to bring the fuel consumption down significantly through retrofitting, he said. But if you have a ship of an age where the engine cant offer the low maximum continuous revolutions then you have a problem. If you cant ultra slow steam your ship, I dare to say very few people would want to take it on charter today. You need that flexibility. That is the category of ships that has to go. Overall, both Mr Hubbard and Mr Roach believe there will be opportunities for panamax vessels after the completion of the canal expansion. They are very versatile vessels and if you look at how many actually go through the canal, its only 31% of them, Mr Roach said. So even though there will be an expanded Panama Canal it isnt going to be the death of the panamax vessel fleet, it just needs to be trimmed down. Mr Hubbard said: There is some light at the end of the tunnel in terms of the deployment of panamax ships. But we must see scrapping soon and if the market is going to recover, we must also see macro growth. We are so used to this small and slow growth I think a lot of people are assuming that is going to go on forever, but it wont
Posted on: Thu, 13 Feb 2014 08:21:35 +0000
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