24 Jun 2016

Expanded Panama Canal an expected boon to exporters

7:46 am on 24 June 2016

Exporters think this week's opening of an expanded Panama Canal will help keep costs low and New Zealand produce competitive.

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Photo: Wikicommons

The canal expansion will almost triple the capacity of ships using it.

Sending goods overseas is already relatively cheap because a worldwide glut of shipping has depressed freight costs, and exporters believe economies of scale from having larger ships using the canal will help keep the rates low.

The Panama Canal has beein widened and deepened and bigger locks have been added, allowing ships carrying 13,000 containers to go through, compared to vessels with a 5000 container capacity.

The nine-year project took 30,000 workers and incurred a bill of $7.4 billion.

It will be formally opened on Sunday, when a 94,000 tonne Chinese-owned ship, the COSCO Shipping Panama, will travel through the expanded waterway.

Projects like this matter to New Zealand, which sends over $40bn worth of commodities overseas each year, 97 percent by ship.

At present, some New Zealand exporters send goods to the US or Europe via Singapore, where they are put on a bigger ship, or they are sent to the US west coast and moved by train to the east.

Shipping analyst Dave McIntyre said more might go direct to east coast US ports.

"You will get more services going through the canal that previously went to the US west coast," he said.

"They will go directly to the US east coast because the cost of taking goods directly to port is cheaper, even if you factor in the cost of using the Panama Canal."

The Panama Canal expansion has coincided with New Zealand ports either carrying out or preparing to carry out dredging work to increase their own capacity.

Although enlarged New Zealand ports will still not be anywhere near the capacity of the new Panama Canal, they will be able to handle bigger vessels than those that have used the canal up until now.

Foreign cargo vessels make almost 5000 visits to New Zealand ports annually.

The fees charged by those ship owners are historically low - one key Shanghai-based index says shipping costs have halved in two years.

The Shippers Council represents companies that use these ships such as Zespri, Fonterra and Enza.

Spokesman Mike Knowles was optimistic that an enlarged canal would keep freight rates low for longer.

"It should be positive for all New Zealand shippers," he said.

"Bigger ships are generally more efficient and have lower per unit costs.

"Freight rates globally and out of New Zealand are very competive now and even holding rates (at the current level) would be a positive."

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