the need for public infrastructure. For instance, what are current inland rail rates and how much could they fall and still be profitable? What are the costs of container transfer operations in the Caribbean, particularly if scale economies in transshipment are realized at particular ports, and how much of the operating costs savings of larger container ships transiting the Canal would be eroded by the container transfer fees? How will shippers react to the longer transit times associated with all-water services, particularly in an era of slow steaming? Many more questions of this type will become apparent as we go forward. In general, however, in competitive situations where a cost reduction of $100 per TEU caused by the use of larger container ships transiting the Canal may influence decisions on whether to go by all water or by West Coast land bridge, the summation of offsetting transshipment fees, fuel surcharges, rail charges, port charges, and tolls can make an important difference in coastal shares of cargo. Individually, the sizes of these mitigating costs are hard to ascertain; their collective impact is even more difficult to quantify in a reliable manner. AccommodatING Larger Vessels Many ports on the US East and Gulf Coasts are planning to accommodate large post-Panamax vessels in the near future and are proposing to make large investments to accomplish this (some ports can already handle some of these ships). These include deepening channels, adding new
2011 Issue VI
post-Panamax cranes with sufficient reach to work ships with 160 foot beams, and making improvements in other areas such as on-dock rail. New York is proposing to spend over a billion dollars to increase the “air draft” of the Bayonne Bridge so the new, larger ships can reach Port Newark Elizabeth, the main container facility in the harbor. The trend of world shipping is clearly toward larger container ships – larger than the 5,000 TEUsize vessels that can currently transit the Canal and increasingly above 10,000 TEU. Alphaliner recently reported that, Since 2008, 98 ships of over 10,000 TEU have been delivered with a further 147 units due for delivery over the next four years. Their ranks are expected to swell by over 50 units by the end of the year as plans by various carriers to order ships of this size are firmed…The carriers’ inability to rein-in the huge appetite for new and larger tonnage will inevitably lead to further rate competition. Of the main carriers, 13 have already opted for ships of at least 12,500 teu, with only seven of the Top-20 carriers not yet committed to ships of above 10,000 teu (Alphaliner Weekly Newsletter, Volume 2011, Issue 25). Alphaliner further notes that unit cost advantages for a 13,000 TEU vessel compared to an 8,500 TEU vessel can be $150 per TEU in the Far East-Suez-Europe trade and relative to a 6,500 TEU vessel can be $250. These impacts are significant in a low freight rate environment and will continue to drive the trend toward larger ships and place growing pressure on vessels
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under 8,000 TEU. Thus, quite apart from the potential need to accommodate 5,000+ TEU vessels that will begin to arrive via the Panama Canal from 2014 onwards, East Coast and Gulf Coast ports and the railroads and highway connectors that support them will eventually need to handle these large vessels (and their cargos) as they become more prevalent in the worldwide trades. The inability to accommodate such vessels could otherwise relegate all but a few East Coast and Gulf Coast ports to service by smaller feeder container ships and less efficient bulk ships, and possibly put some ports at risk of losing customers to higher volume ports elsewhere in the United States and Canada (such as Halifax). Investment to accommodate larger container and bulk ships is extensive and costly, affecting channels, port facilities, and inland connections. Whereas most major ports will want to accommodate vessels larger than 5,000 TEU, accommodation of the largest of these ships (particularly those with drafts of 45 feet or more) will be very expensive. Nine of the top 15 container ports on the East and Gulf Coast ports currently do not have channels of 45 feet, and only one currently has channels of 50 feet needed for ultra large container ships (although Baltimore and New York will soon reach 50 feet). Moreover, while accommodation of vessels of under 9,000 TEU is viable in ports with channels of 45 feet, it is not clear that many ports will have the trade volumes to draw these vessels. It
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