Battle of the Canals: Suez-Panama high stakes game for peoples of the Mediterranean and Black Sea
 LIKE politicians in a tight race, the Suez and Panama canals vie for a vote of confidence from world shipping interests. And if the stakes are high for the 3.8 million Panamanians, they are far higher for the 557.3 million who inhabit the 17 countries around the Med and Black Sea for whom the Suez Canal provides so much.
As for winners and losers in this global Battle of the Canals, many factors contend to produce rationales and scenarios that are sound one day and foolish the next. But all agree on one point. Victory hinges on getting cargo to the east coast of North America - principally the United States.
Of course, the Suez route is the only choice for Europe, and if it has any rival, it is the Arctic Northern Sea Route over Russia. But that's in the Never-Never Land of state-funded souls whose dreams depend on global warming. Today, there are also trains and trucks from China to Europe offering advantages to small niche markets.
What tips the balance in favour of Panama today is the prospect of delivering vast cargo loads a day earlier than ships transitting Suez can to meet the voracious demand of the US east coast (USEC).
As a headline word in the Panama-vs-Suez context, "USEC" is of recent vintage, introduced by the Port of Savannah 10 years ago. What Savannah saw was that most Americans - certainly most of they affluent - live east of the Mississippi River, a vertical stream from Chicago to New Orleans.
Within that compact distribution-friendly tract, with its near European population densities, live 75 per cent of American consumers. Except for California there are not many people west of the Mississippi. Just vast tracts of mountainous land and rolling prairies that must be expensively traversed to get cargo where it wants to go - east of the Mississippi.
So the Savannah gang began to urge China shippers and big box retailers in America to "keep cargo on the water" and "make ships your warehouses". Forget the traditional Asia gateway to America on the west coast and go through Panama and make a direct call at Savannah - where rail and road facilities would whisk Asian cargo away to the nearby consumer-rich hinterland that ranged from New York to Miami, Chicago to New Orleans and Dallas.
Why make a trek from LA and Long Beach in the wrong direction to El Paso before it could head in the right direction again north to Tulsa, Topeka before getting to where it wanted to go - Chicago and points east.
The story was compelling. The fact that Savannah enjoyed a 50:50 balanced trade because of the flow of high-value export reefer poultry added to the attraction. It wasn't long befodre Charleston, Norfolk, Jacksonville and Miami were whistling the same tune.
That was 10 years ago. But then 10 years ago, the biggest ship in service was the 14,000-TEU Emma Maersk. The Panama Canal would be expanded in 2014, doubling its capacity from ships of 4,500 TEU to 9,000 TEU. That would still leave mega ships out. But delays in the construction and changes in the plans since enlarged the canal's ship capacity to 13,000 TEU, even 14,000 in a pinch.
These expansions of expansions were accelerated by Asian cargo coming through Suez to reach the US east coast. There had been cases before, but it was reckoned that only cargo from Singapore area and points west could play that game. What's more, shallows of US east coast ports could would stop mega ships using the sky's-the-limit Suez Canal. Even best-in-class Savannah could only dock 6,500-TEUers.
But not for long. USEC ports were madly dredging brushing aside angry ecologists, who had held up Savannah harbour deepening for 15 years. President Obama needed a second term and federal TIGER grants for port infrastructure flew thick and fast to all and sundry.
Ships were getting bigger too, and there were more bigger ships. Before long, Asian shipyards were laying keels for 20,000-TEUers. Crews were getting smaller, slow steaming that saved mega bucks on fuel, suddenly made speed unimportant. The "Just in Time" mantra of yesteryear morphed itself into longer lead times for shippers and more emphasis on on-time reliability for carriers.
In the process, bigger ships, smaller crews, less fuel burn, meant lower rates and slower service. This was the "new normal". With container slot costs hitting rock bottom, overcapacity became the No 1 problem.
The industry found itself caught in a painful dilemma. To enjoy the economies of scale mega ships provided, they had to order megaships. But ordering bigger ships, they produced more unwanted capacity to ship more cargo than there was to ship. The situation was made worse by China's slowing GDP as well as Europe and America's wobbly economies, which were now kept afloat by "printing money", or what was called "quantitative easing".
In America, a "Four Corners" strategy was adopted by the US big box retailers whose large scale operations best suited this coping mechanism. More, but bigger and slower ships under a Maersk Line concept, would form a figurative conveyor belt, bringing a steady stream of cargo to fill vast warehouses at the "four corners" of America in the south east, north east, south west and northest of the Lower 48. There were similar developments in Europe. Hastening the process was a threat of dock strikes in America, first on the east coast and then on the west.
If one could not be supplied from the east, then one would be supplied from the west. As these mega warehouses became realities greater emphasis was placed on the Suez Canal. Five years ago, the Panama Canal expansion - grand as it once appeared - was now looking old hat given the size of ships coming from the yards, which were too big for it.
What's more the intra-Asia trade, long the poor cousin of the transpacific and Asia-Europe routes, had become the biggest of them all. Such changes came out of no where and surprised everyone. It was - and is - an era of sudden massive change. One would come prepared for scorching sun and be diluged by torrential rains. It happened time and time again and is still happening.
With China's galloping GDP slowing to a walk, and having priced itself out of the low-end market, factory work migrated to Vietnam. Cambodia, Indonesia, Bangladesh and India. (Worth mentioning was a parallel trend towards "near shoring" that is, having low-end manufactures made in low-wage Latin America, or in highly automated US plants.)
But bigger ships and more of them suited Suez, with its sky's-the-limit ship sizes. Put all these factors together and Suez started to make more sense. And when the west coast dockers, of the International Longshore and Warehouse Union, threatened to strike - that clinched it, putting Suez in a leading role for a time.
That has see-sawed back and forth since with the latest reading in from Houston, where container inflow shot up 18 per cent last year during the turbulent west coast dock talks in the first half and then slipped four per cent year on year in 2016. That clearly means it kept the bulk of its gains. At the same time, LA-Long Beach statistics show they had recovered losses from last year's strife. On the other hand Savannah and Charleston, like Houston, have shown they have lost little of last year's gains.
Of course, the US economic recovery, while not as robust as it has been, is in better shape than Europe and with a weaker dollar has experienced a mini-import boom on the transatlantic. Bombings and shootings in Europe have contributed to the slowdown, with the tourism taking a hit, and with that demand depressed, sales of all consumables have become weaker, lessening the need for shipping which is already afflicted over overcapacity.
Keeping Suez in the top spot, or at least in a prominent position, vis-a-vis Panama in the area of US east coast cargo deivery, is vital for the Mediterranean peoples, which for this purpose includes those of the Black Sea.
If Panama were to get the lion's share, the Mediterranean people will suffer, for the simple reason that more begets more just as less begets less. What makes that less important for Panama is that its good affects the people of one small country of 3.8 million people. But that good does not touch the loss it would occasion for the people of 17 countries around the Mediterranean and Black Sea with a total population of 557.3 million.
Thus, every effort must be made to make the Med friendly towards cargo growth and be prepared to protect the area from regulators who can be counted on to devise more rules and compliance costs that remove what advantages the Med has. China is to be encouraged to pursue its "one-belt, one road" policy, particularly the canal building project across the Malay Peninsula that will shave a day off transit to the Med with a Singapore bypass. Defensively, the Med must look to smoothing transshipments in places like Malta in the way Kingston, Jamaica, is being fashioned by French shipping giant CMA CGM. Also to be guarded against is the risk that Panama Suez and transshipped from Algeciras and Tangiers. A glance at the map shows how well Panama is positioned to serve West Africa, which is bound to grow in prosperity and population.
Time's right for Med and Black Sea maritime interests to explore ways to work together taking what they can and protecting what they have - and realise that they are in a contest with Panama. Because if they do not know they are in a game, they are bound to lose it |
