The Panama Canal – An Expanded Analysis

Abstract: The Panama Canal expansion is an external factor on the tanker freight market that is made to change cargo volumes, channel fee income, the average transit time and might also change or create new profitable transportation routes. Shipowners operating in the region will, in one way or another, be affected by this. For tanker shipping companies like Stena Bulk the challenge is to create robustness for the future development in the tanker freight market, i.e. become aware of and understand opportunities and risks created by the expansion. Purpose: The purpose of this thesis is to describe and analyse the expansion of the Panama Canal in order to create increased robustness for the future development on the tanker freight market. Method: The research has been conducted using scenario analysis and the two first steps in the TAIDATM model; tracking and analysing. The qualitative primary empirical data has mainly been collected by numerous semi-structured interviews with various important actors in the tanker freight market. The secondary data was collected from written documents such as books, articles and digital sources. Conclusions: Both Aframaxes and Suezmaxes will be allowed to transit the expanded Canal and these larger vessels might give the shipowners new profitable trade routes due to economies of scale. The expansion will also allow a larger number of transits through the Canal and thereby almost double the capacity. The increased capacity will generate a faster average transit time and thus increased reliability, allowing the shipping companies to save time and thus money. These main opportunities can be summarized as follows: • Economies of scale due to the possibility to transit Aframax and Suezmax through the Canal • Nearly doubled capacity with increased reliability • Shorter average transit times thanks to less risk of delays For the actors on the tanker freight market this gives an opportunity to increase trade but the price for this is the tolls that the shipowners pay for transiting the Canal. The shift by the Canal authority towards a market oriented toll structure and better services during the last decade has led to increased reliability of the Canal. If this development is changed and a more state budget controlled toll policy is implemented there is a great risk that the tolls will soar which will affect the tanker freight market negatively. It is also relevant to study the focus on the ports infrastructure. If important ports in the region do not keep up with the investments being made in the Canal the shipowners will not be able to fully take advantage of the economies of scale. Another risk lies in the fact that the expanded Canal will release tonnage in form of Aframaxes and Suezmaxes that before was stuck on either side of the Canal. After the expansion these vessels will be available on both sides and thus increase the supply of tonnage and thereby lower the price on the tanker freight market in the region. These main risks can be summarized as follows: • Changed toll policy can lead to soaring Canal fees • Lack of port infrastructure reduces the benefits of the expansion • More and larger vessels available in the region lowers the freight rates