CSCMP Cincinnati 2013 February 21st Georgia Tech Panama Staff Daro - - PowerPoint PPT Presentation

CSCMP Cincinnati 2013

February 21st

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Georgia Tech Panama Staff

Darío Solís, Ph.D. Managing Director Yuritza Oliver Senior Research Engineer Carlos Gómez Senior Researcher Pablo Achurra Research Engineer Melissa Sánchez Research Engineer Juan Carlos Peña Research Engineer William Vong Research Engineer Danna Ramírez Research Engineer Lucía Cheung Research Engineer Mónica Saturno Research Assistant

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Georgia Tech Faculty and Staff

Amar Ramudhin, PhD Director Jaymie Forrest Managing Director

• H. Donald Ratliff, PhD

Executive Director John Bartholdi, PhD Co - Executive Director

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Gold Rush of 1849

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DURING THE GOLD RUSH OF 1849, THOUSANDS OF 49ERS JOURNEYED BY BOAT FROM THE AMERICAN EAST COAST TO PANAMA AND THEN CROSSED THE ISTHMUS TO BOARD SHIPS BOUND FOR SAN FRANCISCO BECAUSE THE MIDDLE AND WESTERN PORTIONS OF THE AMERICAN FRONTIER WERE STILL LARGELY UNSETTLED AND OFTEN HAZARDOUS, THE RACE TO THE CALIFORNIA GOLD FIELDS WENT FASTEST THROUGH PANAMA.



IN RESPONSE TO PROSPECTOR DEMAND, A RAILROAD WAS BUILT TO CROSS THE TREACHEROUS ISTHMUS IN THE 1850S.

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Main Topics

Global Economic and Trade Outlook Economic Perspectives in Latin America Implications of larger ships and impact

for North America

Other Considerations

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3 6 9 2000 2002 2004 2006 2008 2010 2012 2014

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Real GDP Industrial Production

(World GDP, Percent change)

The World Economy is still recovering

Source: IHS Global Insight

Cargo trade demand is a reflection of industrial production

• Indust. Production, Percent change

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Ship Happens…

Source: Jean-Paul Rodrigue

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Source: IHS Global Insight & Halcrow

Source: Global Insight, Worley Parsons

Real GDP (% change)

The emerging markets fared best and are leading the recovery

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2 4 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 World Advanced Countries Emerging Countries

US > Europe, Japan Gap between emerging and advanced countries will shrink slightly.

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1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Percetn Share

(World imports, percent of GDP)

World’s trade share of the economy grows again after a temporary decline

Source: IHS Global Insight

Globalization trend is long-term and has not reversed or stopped

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80,000,000 90,000,000 100,000,000 110,000,000 120,000,000 130,000,000 140,000,000 150,000,000 160,000,000

2008 2009 2010 2011 2012 2013 2014 2015

World TEU exceeds the 2008 numbers with Moderate growth

8.8%

FULL TEUs

2008-10 0.0% CAGR

0.0%

2010-15 6.6% 2015-30 5.0%

5.4%

2010-15 6.2% 2015-30 5.0%

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Relevant TRADE Implications

• North American import growth will be sluggish in 2012
• Stronger trade growth is with the emerging markets
• After 2012, things should be more “normal”, heading

into the Canal expansion opening (2015)

• Transshipment will grow, as a necessity

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Main Topics

Global Economic and Trade Outlook Economic Perspectives in Latin America Impact of larger ships and implications

for North America

Other considerations

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Fastest-Growing South American Importers from USA

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1 3 5 7 9 Brazil Argentina Nicaragua Venezuela Chile Colombia Peru Panama 2009 2010 2011 2012

5.8

(Real GDP, percent change)

Solid Economic Growth in South America

Source: Data from IHS Global Insight, CIA Factbook, OECD, Moody’s, Goldman Sachs, Oxford Economics, BMI

US US

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Important China-Mexico Trade

Mexico Trade Partner Shares 0% 5% 10% 15% 20% 25% 30% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USA CHINA SOUTH AMERICA EUROPE

CHINA EUROPE USA

• S. America

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Colombia Trade Shares 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USA CHINA SOUTH AMERICA EUROPE

Diverse Trading Partners: Colombia

USA CHINA EUROPE

• S. America

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Main Topics

Global Economic and Trade Outlook Economic Perspectives in Latin America Impact of larger ships and implications

for North America

Other Considerations

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Fact 1: Cargo tonnage growth has greatly

• utpaced world population

Index for World Population (Millions) and World Ocean Cargo (Milions of Metric Tons)

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100 150 200 250 300 350 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Tons of Ocean Cargo People 3.7 Billion People 7.7 Billion Tons 2.4 Billion Tons 6.8 Billion People

U.S. Navy Operational Intelligence Center Quote U.S. Census Bureau and AAPA Data

75% increase in Tons per Person

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FACT 2 : Move to Larger Ships

New locks' maximum vessel size:

12,600 – 14,000 TEU “We intend to deploy the biggest ships as quickly as possible once the locks are open.”

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In this context, the Panama Canal is important for U.S. trade.

Panama Canal

3% of World Cargo, 66% touches USA 9% of World Cargo, 3% touches USA

Suez Canal

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Two thirds of Panama Canal cargo touches the U.S., and container ships are 24% of the flow

• Bulk ships (mostly grain) and Tank ships (no crude oil) carry

specific commodities in unscheduled service.

• Consumer goods move around the world on scheduled

routes in 20 to 40 foot containers.

• Dry Bulk and Container ships push the upper size limits for

a significant share or their traffic, unlike other vessels.

Change Ship Type Annual Share Daily vs 2009 Dry Bulk 3,050 24% 8.4 14% Container 3,031 24% 8.3

• 10%

Tankers 2,233 18% 6.1

• 4%

Refrigerated 1,718 14% 4.7

• 13%

Others 893 7% 2.4

• 5%

Gen Cargo 834 7% 2.3

• 4%

Auto Carriers 607 5% 1.7 29% Passengers 225 2% 0.6

• 5%

Total 12,591 100% 34.5

• 2%

2010 Ship Transits

40M Tons of U.S. Export Grain

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Containerships dominate the discussion, but make up only about 10% of the World Fleet

From Lloyds SeaSearcher extracts on 02 Jan 2011

Product Tanker Container

Most consumer goods move in Container Ships. 100% Fit Today 68%  99%

World Fleet Ship Type All GT 500 All Tankers 11,829 Gen Cargo 8,578 All Bulk 8,427 Gen Cargo With Cont. 5,133 Container 4,923 RoRo 1,230 L P GAS 1,200 Reefer 1,134 RoRo With Pass 866 Vehicle 761 Pass Cruise 430 LNG Carrier 350 RoRo With Cont 148 Full Cell Reefer 18 Sub Total 45,027

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A larger share of other vessel types will also be able to make a fully-loaded canal transit.

Dry Bulk Vehicles

Crude Oil

LNG Crude Oil

55%  80% 10%  90% 100% Fit Today 0%  42%

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Forecast East Coast Container Fleet

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Impact of the Panama Canal Expansion?

 Larger ships, and more of them, can be accommodated

— Focus is on Bulk, LNG and Container ships — Not all ship types will increase in size or frequency

 Potential economic elements

— Cost per container decreases if ship size increases — Shippers push to capture the carrier cost savings — East Coast ports invest to handle more trade from all regions — West Coast ports respond competitively —Location of transhipment is key

 Major questions for an ocean container carrier:

— Do I redeploy part of my fleet to the all-water route? — Do I keep the savings, or pass it on to my shippers?

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Potential Impact

 The potential for reduced cost of the water route

through the canal may cause freight traffic to shift from West Coast to East Coast ports.

 To take full advantage of the very largest vessels that

will be able to fit through the expanded canal but may be too large to call at most U.S. ports, a transshipment service in the Caribbean or a large U.S. port may

• develop. The largest vessels would unload containers

at the transshipment hub for reloading on smaller feeder vessels for delivery to ports with less channel capacity.

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Impact of Post Panamax Ships

• Not likely to reduce freight rates

– 12,000 TEU ships are about 10% per slot cheaper to operate

• Not enough freight for direct lanes
• Biggest ships can only access one

east coast US port

• There is likely to be a transshipment

hub in the triangle

• Connectivity to the transshipment

hub will be critical for competiveness

Ref: Hofstra University, Dr. Jean-Paul Rodrigue Factors Impacting North American Freight Distribution in View of the Panama Canal Expansion 2010

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• P. CABELLO
• P. of SPAIN

RIO HAINA SAN JUAN CAUCEDO

Caribbean Transshipment Triangle

FREEPORT COLON/MIT KINGSTON CARTAGENA

CUBA The best transshipment options are now becoming clear.

MOIN

At capacity

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Moín – Limón, Costa Rica

• $992 million by APM Terminals
• Designed for 100% domestic cargo
• nly – but transshipment is possible
• Concession approved - April, 2012,

1.2M TEU in Year 1

• It’s all about productivity

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Other Wishful Thinkers in the Caribbean

Many small islands are thinking of developing their ports into transshipment hubs. Examples are:

• Guadeloupe
• St. Kitts
• Curacao
• Margarita (Ven)
• Puerto Rico (Port of the Americas)
• Trinidad & Tobago

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Short Sea Shipping in MesoAmerica will require transshipment.

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US-PANAMA

Countries

Mexico (south) Belize Guatemala El Salvador Honduras Nicaragua Costa Rica Panama Colombia Dominican Republic

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There are truths and myths when it comes to the economics of bigger containerships

• The PPX ships bring new

efficiencies (lower costs) per TEU

• The PPXs make money only when

steaming

• The PPXs will call many ports on

the USEC and in the Caribbean

• Many ports can quickly and

efficiently handle 8000+ TEUs from one ship

TRUE FALSE

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East Coast ports already handle Post-Panamax ships, but few ships above 6,000 TEU

PORT ALL CALLS 4400 to 6000 6000 to 8000 GT 8000 GT 4400 GT 6000 New York 4,690 1,942 71 35 44% 2% Norfolk 1,748 915 49 34 57% 5% Portsmouth 1,714 360 43 19 25% 4% Savannah 3,535 1,653 149 4 51% 4% Charleston 2,605 741 109 32 34% 5% Jacksonville 867 245 5

• 29%

1% Miami 1,755 475

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27% 0% Port Everglades 1,717 124 42

• 10%

2% CAN - Halifax 709 597 2

• 84%

0% CAN - Montreal 491 47

• 10%

0% Houston 1,909 276 49

• 17%

3% Mobile 340 40

• 12%

0% Long Beach 2,212 519 254 250 46% 23% Los Angeles 2,820 997 554 241 64% 28% CAN - Prince Rupert 199 143 41 9 97% 25% CAN - Vancouver 1,103 494 202 78 70% 25% Grand Total 28,414 9,568 1,570 703 42% 8%

Two Years of Containership Calls November 30, 2008 to December 01, 2010

East West

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Cost per TEU - Shanghai to Louisville KY 4000 TEU 8000 TEU Intermodal Panama Intermodal Panama

Cost Days Cost Days Cost Days Cost Days Ocean $1,302 13.7 $2,085 23.7 $1,155 9.8 $1,830 22.8 Inland $2,564 8.3 $1,077 4.2 $2,564 8.3 $1,077 4.2 Total $3,865 22.0

$3,162

27.9 $3,719 18.1

$2,907

27.0

On Asia-US East Coast, the all-water Canal route cost is lower on larger ships

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$1,000 $1,500 $2,000 $2,500 $3,000 $3,500

All-Water (Current) All-Water after Expansion

4000 TEU 8000 TEU

On Asia-US East Coast, the all-water Canal route cost is lower on larger ships

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For a typical Asia-US East Coast voyage, shifting to an 8000 TEU ship expands the market reach of the US East Coast ports

48%* 4000 TEU ship 8000 TEU ship

Assumptions Shanghai to Louisville, KY Canal tolls based on current rates Owned ship, financed at current rate Inland move by rail

61%*

*Share of the US population reachable by rail

Intermodal Advantage

Canal Advantage

2015 NOW

250 - 0 -

• 250 -
• 600 -
• 750 -
• 1000 -
• 1250 -

61%*

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Shippers consider much more than ocean shipping rates when designing a supply chain

• Transportation Costs

– Truck or rail to port – Port to port ocean costs – Canal and port fees – Intermodal or truck for land-based line haul – Drayage truck to DC or store

• Inventory Costs

– Warehousing and origin accumulation before shipment

– In-transit pipeline days – Value and decay as shelf life is consumed in transit – Safety stock to cover transit reliability and demand fluctuations

• Other Costs

– Transloading, mixing and consolidation services – Projected carbon footprint tax – Switching costs for IT and other structural elements

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In the Shanghai to New York example, commodity value is a strong driver of total cost

• High Value goods can be worth $300,000 per Container

– 385 FEU: Logistics adds $3.5M annually to the $120M product cost – Inventory and Safety Stock costs are high – Transportation costs are 40% of logistics costs – West Coast landing has 2% cost advantage

• Average Value goods worth $70,000 per Container

– 214 FEU: Logistics adds $1.1M annually to $15.3M product cost – Inventory and Safety Stock costs are low – Transportation costs are 80% of logistics costs – East Coast all water route has 2% cost advantage

• For each commodity, the difference per load is in the range of $200

to $300 per 40 Ft container and is sensitive to service changes, canal tolls, handling fees or a changing ocean rate differential

This is one comparison of thousands. Shipper-specific rates, costs, times, distances, densities and volumes are required to analyze specific supply chains.

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Different Stakeholder Perspectives

• Carrier perspective

– Transportation assets move in cycles or routes so flow balance matters – Larger transportation assets are generally more efficient per unit transported than smaller assets – Ship utilization is improved by multiple stop routes – Carriers control ship routes

• Shipper perspective

– Total landed cost includes both transportation and inventory – Increasing transit time increases inventory – Increasing transit time variability increases inventory – Trend toward shippers controlling container routing

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Applying the estimated shipper economics to each port generates a line of indifference.

Annual difference is about 2%. Small changes in assumptions can cause a shift in who “wins”.

$600 $1200 $1800

$3,400 via LA $3,600 via Canal

Indifference Line Using 4400 TEU Ship via Norfolk.

$3,100 via Canal for Norfolk Local

This iteration of model results is based on estimated ship

• perating cost model,

not retail ocean prices. Examples Use: Microwaves, which are worth about $70,000 per FEU, roughly the average value per FEU for U.S. Imports Use Canal Use Landbridge Note: All examples include a $30 per ton tax on CO2 emissions, at 22 pounds of CO2 per Gallon of Diesel.

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Increasing ship size to 8000 TEU via the East Coast lowers ocean carrier costs about $300.

$600 $1200

$3,400 via LA $3,300 via Canal

Indifference Line shifts West, when using 8000 TEU ship via Norfolk.

Microwaves are worth about $70,000 per FEU, roughly the average value per FEU for U.S. Imports

Indifference line moves west to Alabama and Mid-Ohio, but

• nly if shippers capture the
• cean carriers’ cost

reductions.

This iteration of model results is based on estimated ship operating cost model, not retail

• cean prices.

$2,800 via Canal for Norfolk Local, vs $3,100 with 4400 TEU Vessel.

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Average-Value Goods: Indifference line shifts west with fuel tax, slow steaming and ship size

24 Knots India Sourcing 24 Knots $2 Fuel Tax 24 Knots 8000 TEU 24 Knots 4400 TEU

Microwaves are worth about $70,000 per FEU, roughly the average value per FEU for U.S. Imports

20 Knots 8000 TEU

This iteration of model results is based on estimated ship

• perating cost model,

not retail ocean prices. Note: All examples include a $30 per ton tax on CO2 emissions, at 22 pounds of CO2 per Gallon of Diesel.

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High-Value Goods: Current indifference line hugs the eastern shore, then moves west

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20 Knots 8000 TEU 24 Knots 8000 TEU 24 Knots 4400 TEU 24 Knots $2 Fuel Tax 24 Knots India Sourcing

Shoes worth about $300,000 per FEU, roughly four times the average value per FEU for U.S. Imports This iteration of model results is based on estimated ship

• perating cost model,

not retail ocean prices. Note: All examples include a $30 per ton tax on CO2 emissions, at 22 pounds of CO2 per Gallon of Diesel.

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Reactions are not immediate: Potential shifts must be viewed in an existing network context

$600 $1200 = Existing Import DC

India Sourcing $2 U.S. Fuel Tax East Coast 8000 TEU

Microwaves are worth about $70,000 per FEU, roughly the average value per FEU for U.S. Imports

Average Value Today High Value Today

This iteration of model results is based on estimated ship operating cost model, not retail

• cean prices.

Reactions could include changing prices, improving productivity, shifting production, building alliances and many

• ther elements.

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In Summary: The ability to move larger ships will create many opportunities

 Ocean container carrier costs decline, if larger ships are repositioned into the all water route

— Shippers are aware of potential for lower carrier costs — Ocean carriers must balance Price versus Share — East Coast ports will continue to invest, to handle more trade and larger vessels from Europe, South America and the Far East — West Coast ports will respond to the competition — All options should be weighed in the context of China’s decreasing labor multiple versus the United States

 Other trades could be affected

— Most of the LNG fleet will be able to move between Pacific and Atlantic Basins, if market forces warrant — Grain ships will be much less constrained by canal size

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Main Topics

Global Economic and Trade Outlook Economic Perspectives in Latin America Impact of larger ships and implications

for North America

Other considerations

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Preparing for Post-Panamax Vessels

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Post Panamax Vessels

 Potential to provide a cost-effective complement to

the intermodal transport of imports via the U.S. land bridge

 Re-shape the service from Asia to the Mediterranean

and on to the U.S. East Coast

 Affect

the highly competitive transport price structure along the Midwest to Columbia-Snake route for grain and other bulk exports bound for trans-Pacific shipping

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U.S. Golf and South Atlantic Ports

 Inland waterways play a key role in the cost efficient

transport of grains, oilseeds, fertilizers, petroleum products and coal. Gulf ports play key roles in the transport of these commodities, such as New Orleans being the dominant port for the export of grains from the U.S

 The expanded Canal could provide a significant

competitive opportunity for U.S. Gulf and South Atlantic ports and for U.S. inland waterways

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US Ports Considerations

 West Coast (Los Angeles, Long Beach, Oakland and

Seattle/Tacoma) and East Coast (New York, Baltimore and Hampton Roads) Ports are expected to be ready with post-Panamax channels in 2014

 Lack of post-Panamax capacity at U.S. Gulf and

South Atlantic ports – the very regions geographically positioned to potentially be most impacted by the expected changes in the world fleet.

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Preliminary results. More studies on the way.

 At the Port of Savannah, USACE has identified an

economically viable expansion to accommodate post-Panamax vessels. This project is estimated to cost $652 million dollars

 Justified investments in inland waterway locks and

dams will be needed to allow the waterway transport capability to take advantage of an expanded Canal for U.S. exports

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Opportunities for Bulk Cargo

 On the export side the ability to employ large bulk

vessels is expected to significantly lower the delivery cost of U.S. agricultural exports to Asia and

• ther foreign markets. This could have a significant

impact on both the total quantity of U.S. agricultural exports and commodities moving down the Mississippi River for export at New Orleans.

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US Ports Ready for Post-Panamax Vessels

 U.S. West Coast ports at

Seattle, Oakland, Los Angeles and Long Beach all have 50-foot channels

 Northeastern U.S. ports

at Baltimore and New York have or will soon have 50-foot channels.

 In the Southeast,

Norfolk has 50-foot channels

 Charleston with a 45

foot channel depth and nearly 5 feet of tide can accommodate most post-Panamax vessels

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Cascade Effect

 Big ships displacing small ships across all ship

sizes

 New, large vessels are typically deployed on the

longest and largest trade service. The “smaller” vessels are re-deployed to the next most efficient service for that vessel size. Cascading typically increases average vessel size for each trade service

 Ports need to be updated to handle larger vessels

(cranes, equipment, infrastructure, etc.)

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Inland Waterway Connection

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US Inter-Modal Map

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North America's Super Corridor Coalition, Inc.

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Central Ohio River Business Association CORBA

 Interruption of waterway system will have dramatic,

negative effects on the agricultural industry and American economy

 13 million tons of agricultural goods leave the Ohio

Valley via waterway transport and 11 million tons end up passing into the Gulf of Mexico

 Waterway system also allows efficient transport of

coal and fuel resulting in reduced energy costs

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Things to consider for Coastal Ports from Report

 Increase Federal appropriations in the USACE budget for

harbor maintenance and improvements while maintaining current cost share responsibilities

 Increase Harbor Maintenance Trust Fund (HMTF) user fees

and allocate increased revenues to harbor improvements

 Maintain or increase Federal appropriations and also increase

local cost share requirements

 Encourage individual port initiatives by phasing out the HMTF,

expecting individual ports to collect their own fees and make their own investment and maintenance decisions

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Things to consider for Inland waterways

 Increase the fuel tax and provide increases in

Federal appropriations. Replace the fuel tax with a vessel user fee and/or combine the fuel tax with a vessel user fee and increase revenues and appropriations for improvements at least by the amount of the increased revenues

 Implement public-private partnerships with the

responsibility for improving,

• perating

and maintaining the inland waterway navigation infrastructure along specified segments of the system

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Questions and Comments

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