Economic Impact of The Panama Canal versus The Panama Canal Railroad Company on the Liner Shipping Industry

Over the years, determinant factors as international economic growth, technology developments and political circumstances have influenced the production and consumption markets that conversely have shaped the liner shipping industry and the transport demand. This has led to solid trends in the container shipping industry, whereof ordering vessels of increased size have become the predominant one. This is mainly due to the robust findings in regards to the benefits that the principle of economies of scale means for shipping lines, in terms of the savings in operational and fuel costs per TEU-slot. However, even though this trend represents enormous advantages to shipping lines, for other actors in the liner shipping industry, namely ports, terminal operators, rail operators, intermodal operators and canals, among others, the effects are still uncertain. This last is the case of the Panama Canal (PC), which in 2006 decided to undertake a 5.25 billion dollars project to upgrade and expand its current locks, allowing the passage of containerships of 13200 TEU, instead of 4500TEU. Despite the fact that the potential effects that the Panama Canal expansion project will have in the liner shipping industry are still uncertain, what is indeed certain is that the project will open a new opportunity for the whole industry to expand their markets deploying bigger vessels and taking advantage of the benefits from economies of scale. Particularly for the container shipping lines, the Panama Canal expansion means a new alternative to re-design the current network configurations into ones more cost-effective. This research focused in Panama, the host-country of the Panama Canal expansion project and in its current land-bridge transhipment operations via the Panama Canal Railroad Company for the trade from FEA to ECSA. After the completion of the expansion project in Panama, shipping lines will have the possibility to deploy bigger vessels to cross the canal, instead of using the transhipment model through the PCRC. The main purpose of this study was to identify which of these two is the best alternative from a cost-perspective, assuming containerships with different capacities. The results of the research were gathered through the construction of a cost model, in which the operational, fuel, terminal handling and toll costs were calculated and compared in a cost per TEU-basis. The main findings of the study where that the transhipment operations through the rail are more expensive per TEU compared to the PC all-water route, regardless of the vessel size deployed, mainly due to the fact that the economics through the PC route allowed lower OC, FC and Tolls per TEU. Furthermore, results indicated that if the Panama Canal Authority builds an additional set of locks enabling the transit of 18000 TEU vessels, then shipping lines could reduce their total costs per TEU about 11% compared to the deployment of 13200 TEU vessels, even though the terminal handling fees for ECSA ports would have to be increased to cover the significant investments costs to upgrade their facilities. The research have several limitations, namely the capital, depreciation, inventory and the time cost were neglected. Also, the research does not consider a combined or intermediate scenario in which the PC and the PCRC can act as complements, which could potentially reduce the costs per TEU. Finally, these limitations constitute clear opportunities that could be considered to develop further research that could enhance, enrich and improve the accuracy of the current study.