New dynamics

22 Aug 2017
Rival: Balboa is facing competition from the expanding PSA Panama International Terminal

Rival: Balboa is facing competition from the expanding PSA Panama International Terminal

The expanded Panama Canal is driving change in Central America. Felicity Landon reports

It’s the big developments in Central America that tend to monopolise the headlines: the Panama Canal expansion, plans for a new port at Corozal, APM Terminals' new port at Moin in Costa Rica, and even the long-discussed proposals to build a Nicaragua canal.

But alongside the ‘global hub’ picture, there’s a regional one too. Central America exports 33% of its goods to the US, its biggest trading partner, but 32% of its exports stay intra-regional.

Speaking at a recent UN/CEFACT conference in Geneva, Javier Gutierrez, executive director of the Secretariat for the Economic Integration of Central America (SIECA), said that this partly explained how the region could withstand the 2008 crisis – while the US was contracting, Central America was growing.

Commodities are part of the export mix but so, too, are manufactured and semi-manufactured goods, with a higher added value content in intra-regional exports, he said. However, research shows that regional value chains are largely restricted to trade between neighbouring countries, because of the ‘boundaries and walls’ that humans put up, said Mr Gutierrez.

“Trade can move at a certain speed within the country, but then it arrives at a border and can take 48 hours or more before goods are cleared. The high costs of transport, lack of harmonisation and regulatory convergence, and border inefficiency accounts for 25%-40% of the final price paid by the consumer.”

This in itself explains why a number of projects looking to create regional hubs to serve several countries have struggled to move forward.

EU assistance

The European Union is providing financial support to a project designed to encourage small to medium enterprises to take part in intra-regional trade and to improve the dynamics of trade overall in Central America. The Central American Digital Trade Platform – a key part of the Central American Strategy for Trade Facilitation and Competitiveness – would deliver automation of procedures and a reduction of export/import times, said Mr Gutierrez. That, he said, could lead to a 3% increase in Central America’s GDP, and nearly 12% increase in exports and imports.

That must be a welcome idea. Looking at the overall picture, Gordon Wilmsmeier, logistics chair at Columbia’s University of the Andes, says: “We have seen shipping lines significantly shifting the new panamax vessels into services through the canal; the bottleneck has gone and the move to larger vessels happened very quickly. That has delivered significant pressure to invest, particularly in superstructure, i.e. cranes. That’s an issue because the demand isn’t there: cargo grew by only 1% in the region last year.”

There is particular pressure on smaller ports in Central America, he says – they might have received the old panamax vessels but can’t accommodate the new ones.

In fact, there is already discussion about a further expansion of the Panama Canal to accommodate even larger vessels.

Overcapacity fears

Meanwhile, there are concerns about future port overcapacity close to the Panama Canal.

PSA Panama International Terminal is expanding its container terminal opposite Balboa to provide 2m teu more capacity; new quay cranes are due to be delivered in October. At the same time, Panama Canal Authority remains keen to champion its proposed new port at Corozal. The deadline for submitting proposals for design, construction, development and operation of a new container terminal expired earlier this year but of the four prequalified port operators – APMT, Terminal Link, PSA and Terminal Investment Ltd – none submitted a bid for the 20-year concession.

Now ACP is expected to re-launch the tender for the 5m teu port, planned at the canal’s entrance on the Pacific side.

Paul Wallace, chief executive of the Panama Ports Company, which operates Balboa, says: “We are a market of 3m teu volumes and we already have 5m teu capacity. PSA is adding another 2m and Corozal would add 5m. If volumes are 3m and capacity is 12m, you have a problem; that port infrastructure simply isn’t required.”

There is already congestion on the canal’s navigation channel because of larger container vessels as well as gas tankers, oil tankers and others, some of which have re-routed via Panama instead of Suez, he says. “We certainly don’t need a port at Corozal for volume reasons – but also, to put a port right outside the locks where you have existing marine challenges because of vessel congestion, would simply create a further obstruction of the channel.”

Observers have speculated that Chinese investment may eventually support the Corozal project.

Dr Wilmsmeier says: “In the past, there would have been several bids for Corozal. But people have become very careful. A major issue is the vertical integration between shipping lines and terminal operators and the fact that there are basically three groups of shipping lines globally. They now exercise significant pressure on terminal operators, or use their own terminal operators they are vertically integrated with, and create their own network efficiencies.”

DP World, Hutchison, PSA and APMT (Costa Rica) are all already present around Panama, he says. “Who would operate Corozal?”

Rail questions

There are other strange dynamics at work. There is a rail line running alongside the canal and ten years ago nobody would have thought they would move any containers on this, says Dr Wilmsmeier. “Now it is completely crowded and they are discussing a second line. And we are seeing containers moved from the Pacific to the Atlantic on trucks, too – which seems crazy, but is sometimes cheaper.”

Converting Panama from transhipment to full logistics hub has its challenges, he says, not least problems with connections to the interior. “Of course, any added value would be good – but you need the facilities and logistics knowhow to do that.”

Crossing borders means navigating around poor roads, difficult topography and mega-bureaucracy: “We still have border issues in the region, and the speed of trucks is still averaging 15-17 kph between countries.”

However, Venezuela’s woes might be to Panama’s benefit. Procter & Gamble has relocated its regional HQ from the former to the latter and other companies are also making that move because of the political situation in Venezuela. “That could be an opportunity for Panama,” he says.

Panama is also putting the emphasis on the maritime-air link; for example, asparagus is shipped in 40ft reefers from Peru to Panama, where it is broken down for distribution to supermarkets across the US.

Dr Wilmsmeier says that for him, the big potential gamechanger for the region is APM Terminals’ 1.3m teu deepwater terminal at Moin, Costa Rica, due to open in 2018. APMT says it will be one of the most advanced terminals in the region and serve as a shipping hub for the Caribbean and Central America. Costa Rica is the world’s largest exporter of pineapples and the third largest exporter of bananas, while sugar, coffee and beef are also major exports. Moin is directly aimed at the huge reefer export business to North America and Europe. There is also news of Costa Rica investing in a trans-isthmus road. “So we are getting this type of information that different countries are looking to invest to connect the region more,” he says.

“The challenge for the smaller countries has always been that they are not well connected among each other.”



WHO WILL WIN THE HUB CROWN?

In Guatemala, APMT is believed to have started some operations at Puerto Quetzal, the new concession which it took over as part of its acquisition of Grup TCB last year. APMT had to pay the Guatemalan government $43m in compensation for alleged bribery offences by TCB before it was taken over.

Whether this will become any kind of regional hub remains to be seen. Another ‘hopeful’ is La Union in El Salvador. Four or five years ago, this was hailed by the El Salvador government as a future replacement for the country’s main port of Acajutla.

“The whole idea started as a regional hub for Nicaragua, Honduras and El Salvador,” says Dr Wimsmeier. However, there have been real problems with rapid silting up of the main channel despite dredging, he says.

Korean interests are now understood to be working with the ministry to prepare a joint masterplan for La Union and Acajutla. “This is a substantial change because there was always the government idea that La Union would replace Acajutla,” he says.

Meanwhile, speculation continues over the Chinese-backed plans for a Nicaragua canal. “In the past few weeks, the Panama Canal Authority has announced a new wave of diplomatic relations with China,” points out regional specialist James Caldwell, senior commercial manager – innovation at Inchcape Shipping Services.

“As Panama politically gets close to China, what does that mean for the Nicaragua project, which seems to have gone very quiet? With the Panama expansion project having gone through, is there a case for another canal to be built? I believe the Panama-China deal is possibly at least a partial death-knell for the Nicaragua canal product.”