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Sunday, September 25, 2022

Maritime Logistics Professional

The game of high stakes and bluff continues over the Canal

Posted to Martin Rushmere (by on May 29, 2012

Panama is testing the market reaction in the run up to 2014.

The latest toll increase proposals  through the Panama Canal are causing worried frowns on the US East Coast, while the West Coast is more complacent than ever over its importance after 2014.

The International chamber of shipping calls the proposals for a 15 percent hike, which could come in from July 1,  “rushed, excessive and likely to cause further problems.” Shippers are starting to say that they will take a fresh look at all-water routes, which is making the railroads feel happier (because the more traffic that goes through the west Coast, the more that will go by rail).

Huge bets are being placed on the post-2014 effect, with the East Coast shoveling in about $5 billion in harbor dredging and new terminals (quite apart from the joint Georgia-South Carolina project at Craney Island.) Charleston, for example, says its whole future hinges on the canal, while Florida is trying to get a greater share of regional cargo that at the moment goes through the west coast.

Meanwhile, Southern California steams at a  steady snail's pace with such projects as Middle Harbor. Port bosses say publicly that LA/Long Beach will be as dominant as ever, in effect telling the East Coast to go twiddle its thumbs.

The new toll proposals are in fact a combination of a bluff in a game of poker and a test of what the traffic can bear. As was evident last year, the ACP is unsure about what to charge, and so is going for a higher rather than lower trial.

What the authority doesn't realize is that the bets the ports are placing are so big that if the increased traffic proves to be a chimera, a couple of the ports are facing a very bleak commercial future. Investment downgrades by the ratings agencies will be the least of their problems.

The ports' strategy is becoming apparent. They are taking out insurance on their bets by bringing in the politicians, in the form of Congress. What was a couple of years ago a very boring subject is now taking up politicians' time, because of the size of the bets involved.

This is going to definitely lead to pressure being placed on both the canal authority AND the government to make sure that the tolls don't deter traffic. Expect also some tub thumping from the more bellicose Congress types about the original canal builders and Panama's history as an independent nation.

Which in turn  is going to lead to the Law of Unintended Consequences showing its hand. Everything will turn out differently to what was expected.