The Panama Canal is one of the most important trade routes on the planet. It is also of great importance to Panama's economy, as each ship pays approximately a quarter of a million dollars per transit, and it is the country's largest employer. The Canal and its expansion were (and are) also critical for the United States.
Article from CruisesNews magazine
The new canal has allowed China to begin exporting LNG and oil from the Gulf of Mexico to the Far East at competitive prices, and to receive "made in China" products directly on the US East Coast. What will the impact be on the cruise industry? Contrary to all predictions, the repercussions of this colossal engineering project appear to be far less significant than in other maritime sectors.
The Panama
Canal Authority (ACP) inaugurated the new locks on June 26th, completed after more than five years of work by an international consortium led by the Spanish company Sacyr. The financial outcome of this project is questionable: claims for cost overruns against the Panama Canal Authority amount to $3.481 billion, nearly double the $1.625 billion claimed two years ago when construction was halted, and exceeding the $3.118 billion offered in the winning bid. In other words, according to Sacyr, the Canal's cost overrun is more than 100%.
For decades, the Panama Canal played a key role in trade and shipbuilding. In fact, one of the fundamental criteria for ship design was whether or not it could transit the Canal. This led to the development of Panamax vessels, those whose maximum dimensions allowed them to use the Canal's locks. For years, this restriction limited the growth of all types of ships, but especially container ships and cruise ships.
Princess Cruises will be the first cruise line to use the new locks in 2017 with the Caribbean Princess.
But China's economic rise ushered in a new era: cargo ships grew larger and larger. The reason was simple: the more cargo they carried, the lower the cost. At the end of the last century, large container ships began arriving in Europe via Suez from China, and also at ports on the US West Coast, from where they were transported by rail to the rest of the United States. In other words, global trade began to rely on ships designed to avoid the Panama Canal, rather than using it. In the cruise industry, since the delivery of the Carnival Destiny in 1996, this same trend has been repeated: the more passengers a ship carries, the lower the cost per passenger. The consequence: today there are 103 post-Panamax ships built or under construction, while only 81 Panamax ships are sailing. The last Panamax cruise ships were delivered in 2010 (MSC Magnifica, Queen Elizabeth, Costa Deliziosa), and there are none in the pipeline for the future.
Therefore, since 2000, most newly built cargo and cruise ships could not pass through the Panama Canal. The Panama Canal Authority began to fear that its waterway could end up like the Corinth Canal: commercially obsolete and relegated to a tourist attraction. The figures were devastating: of the 66 cruise ships scheduled for delivery starting the following year, 42 (representing 88% of the tonnage and 89% of the additional berths) would be unable to transit the old locks. Only the smallest ships, belonging to luxury cruise lines, would be able to navigate between the two oceans via the Panama Canal. The only option was to build a larger canal.
First Transits Through the New Locks:
The first vessel to inaugurate the new Panama Canal on June 26 was the Chinese Neo-Panamax container ship Cosco Shipping Panama, delivered in January 2016. It is 299.98 meters long and 48.25 meters wide. It sailed from the Mediterranean to China. On July 1, another Neo-Panamax container ship, the MOL Benefactor, successfully navigated the new locks with its 120,000 GT, 337-meter length, and 48.2-meter beam. This vessel operates a direct route linking the Chinese ports of Qingdao, Ningbo, and Shanghai, and Busan (South Korea), with New York, Norfolk, and Savannah on the US East Coast, with an intermediate stop in Manzanillo, Panama. For example, transit from Shanghai to New York, Norfolk, and Baltimore is now between 5 and 10 days faster.
On June 27, the Lycaste Peace, a butane (LPG) carrier, became the first gas tanker to use the new locks, this time heading towards the Pacific after loading in the Gulf of Mexico. It had a tonnage of 46,021 GT, a length of 230 meters, and a beam of 36.6 meters.
The Panama Canal Authority is trying to boost cruise tourism by building a new port on the Pacific side, offering priority passage through the locks, reserved slots, etc.
And on July 26, the first LNG carrier, the Maran Gas Apollonia, measuring 289 meters in length and 45 meters in beam, passed through the new locks carrying American methane loaded in Texas for Japan. This transit marked the beginning of a new era for lowering the cost of trade in clean energy sources, as the new locks can accommodate 90% of the LNG carrier fleet.
Therefore, the acceptance of the new locks in the global trade of goods has been immediate. However, the first cruise through the new locks is scheduled for October 2017, almost a year and a half after their inauguration. Why this discrepancy?
The Panama Canal is primarily offered as a winter destination, on routes with full or partial transits, and on repositioning cruises. The former are round-trip itineraries from Miami/Fort Lauderdale to San Diego/Los Angeles, and vice versa. These cruises offer two-week itineraries. Round-trip cruises from Florida with partial transits (only the Atlantic locks) are also available, on ten- to twelve-day itineraries. Both are relatively expensive, niche products, offered mainly by premium cruise lines.
The second type of cruise is a linear itinerary, also starting in Miami/Fort Lauderdale and ending in Seattle or Vancouver in the spring, or vice versa in the fall. These are also long voyages, although repositioning cruise fares are sometimes very affordable. The Panama Canal is often a highlight of both round-the-world and round-the-South-America cruises.
Although many cruise lines include the Panama Canal in their itineraries (Holland America, Disney, Oceania, Crystal, and Regent Seven Seas, among others), the reality is that, besides being a seasonal offering, it was restricted to the oldest and smallest ships in the fleets. And the number of transits wasn't growing: in 2014, 218 cruise ships crossed the Panama Canal. In 2015, that number dropped to 208.
The expansion will allow megacruise ships to cross the 77-kilometer canal, despite height restrictions due to the Bridge of the Americas, which, with its 57.91 meters of clearance, is currently the main limitation on ship size. Panama is considering replacing it with another bridge spanning 500 meters and with 76 meters of clearance under its deck.
The Panama Canal Authority (ACP) offers only four daily slots for Neopanamax vessels, in addition to the 25 available in the old locks. The ACP allows shipping lines to reserve vessel transits in the new locks a year in advance and, starting in June 2017, offers one daily reservation for cruise ships in the new locks, in an effort to revitalize this traffic.
The Pacific as a Source of Cruise Ships:
The Pacific Basin comprises forty states, representing approximately 40% of the world's population and 45% of global GDP. The Pacific Basin covers more than half the globe, with a coastline that also serves as the gateway to the world's largest continental landmass, constituting a gigantic consumer and producer market. In the cruise industry, the Pacific Basin currently represents the area of greatest dynamism and growth worldwide, driven by countries like China and Australia. However, the cruise industry was born and grew in the Atlantic.
This situation is changing. Although the Caribbean and the Mediterranean remain the main destinations, and the United States the primary source market, the Pacific's growth is unstoppable. Australia, for example, has the highest cruise penetration rate of any source market in the world: 4.2%. In China, the cruise market grew by 40%, reaching 986,000 passengers in 2015.
The arrangement of suspended lifeboats on ships such as the Oasis of the Seas, the Norwegian Escape, or the Carnival Vista makes it impossible for them to pass through the new locks of the Panama Canal.
How does this situation affect the Panama Canal? In several ways. First, there's been a notable decrease in Caribbean-Alaska repositioning cruises. Cruise lines like RCI and Carnival Cruise Lines fully cover the Alaskan season with ships based in Australia during the winter. Others, such as Celebrity, Holland America, and Princess, cover Alaska with ships from Australia, China, and the Caribbean. Another popular option (NCL and Princess) is to dedicate one ship to Alaska in the summer and another to South America in the winter. This also saves them the more than $300,000 that each transit costs.
On the other hand, the Chinese, Australian, and Singaporean markets have grown to the point where it's possible to maintain ships year-round in those markets. Previously, to cover a season of several months, cruise ships would arrive from the Caribbean or Europe via the Panama Canal. Today, shipowners tend to keep resident vessels whenever possible to avoid uneconomical positioning. Alternatively, they prefer that two markets like China and Australia complement each other, with ships sharing their respective peak seasons, as Princess and Royal Caribbean currently do.
The First Cruises Through the New Canal:
On July 4, Princess Cruises announced that it will be the first cruise line whose ships will sail through the new locks of the Panama Canal, on the Caribbean Princess itineraries beginning in late 2017. This experience will be part of a 10-day cruise departing from Fort Lauderdale, Florida. The Caribbean Princess will offer a series of thirteen 10-day canal cruises beginning October 21, 2017, with stops in the Cayman Islands, Cartagena (Colombia), Colón (Panama), Puerto Limón (Costa Rica), and Falmouth (Jamaica).
Its 36-meter width prevents it from entering the old locks built in 1914, which are only 34 meters wide. The new locks had been built to be inaugurated on the centenary of their creation, but were delayed for various reasons.
The new locks will use tugboats instead of electric locomotives (the famous "mules") to move the 290-meter-long Caribbean Princess. The 427-meter length of the new locks provides ample space for the ship to pass through.
Three other Princess ships, the Coral Princess, the Island Princess, and the Pacific Princess, would also make transits through the Panama Canal in 2017-18, but negotiating the old locks, with departures from Los Angeles, Vancouver, and San Francisco, and very varied itineraries, with stops in Mexico, British Columbia, and California, including the 60-day, 31-stop “Grand South America” cruise aboard the Island Princess.
The Panama Canal is a marvel of modern engineering, a testament to humankind's ability to continually overcome the limits of nature, to connect cultures… and to lower costs. Witnessing how humans were able to unite two oceans, initially separated by 77 kilometers and 26 meters of land, and thus avoid sailing around Cape Horn, which adds 12,600 kilometers and four weeks of navigation, is incredibly appealing.
Perhaps Panama's development as a cruise destination depends on the creation of dedicated infrastructure. On the Atlantic side, the facilities are noteworthy: the Colon 2000 terminal, since its 2008 expansion, can accommodate ships like Royal Caribbean's Freedom class (150,000 GT); its location is ideal for visiting Colombia, Venezuela, the ABC Islands… and even Jamaica. It is also used by ships that offer optional excursions to the Canal, but do not transit it. On the Pacific side, there is no cruise port, although several projects have emerged in recent years. The latest, sponsored by the Panama Canal Authority itself, is Perico Island, in the Amador archipelago, near Panama City. The initial budget is thirty million dollars… a minuscule price compared to that of the new locks.
Panama is also one of the most modern and advanced tourist destinations in Central America. In short, a trip to remember. It seems that, whether as a home port or for transiting the Canal, Panama's cruise future is secure, albeit at a slower growth rate than expected.
