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  June 8th, 2016 | Written by

Two Alliances Will Upsize Ships Ahead of Panama Canal Expansion

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  • The G6 Alliance's NYX service will deploy 10 units of 10,000 TEU on the Asia-USEC trade.
  • The CKYHE Alliance will make the biggest capacity increases with upgrades of three Panama services to 8,500 TEU.
  • The number of weekly services in the Asia-USEC trade via Panama will remain at 14 after July.

The 9,400-TEU COSCO containership Andronikos will make the first transit of the expanded Panama Canal on June 26, and ahead of that two shipping alliances—CKHYE and G6—have announced plans to upgrade the size of ships used on the Asia-U.S. East Coast via Panama route.

The G6 Alliance will have the biggest ships on the trade beginning in July when its new NYX service will deploy 10 units of 10,000 TEU. But the NYX service will replace two existing loops that use ships of half that size, “meaning,” noted a recent report from Drewry, “the net increase in weekly nominal capacity will be negligible.”

The CKYHE Alliance will make the biggest capacity increases with upgrades of three existing Panama services up to a maximum of 8,500 TEU, as well as re-routing a Suez service through Panama. At the same time, the alliance will suspend one service (AWE2) using 4,500 TEU ships. “All told,” the Drewry analysis concluded, “the forthcoming changes will increase CKYHE’s nominal capacity by nearly 14,000 TEU a week.”

According to Drewry, shippers won’t see significant difference in the Asia-USEC trade via Panama after July as the number of weekly services will remain at 14. The average size ship will increase by 25 percent to 5,900 TEU, Drewry found. But that figure is well short of the 13,000 TEU to14,000 TEU vessels that the expanded Panama Canal will be able to accept.

“There will be nine weekly services using the old Panamax size ships from July, which provides plenty of scope for further upgrades,” the Drewry report noted, “but with demand for U.S. east and gulf coast services slowing we maintain our expectation that carriers will only do so in stages.”

There are also physical restrictions that will prevent carriers from rushing in with the biggest ships, the most obvious being the ongoing project to raise the Bayonne Bridge that restricts access to the port of New York/New Jersey and is not expected to be completed until mid-2019. “As long as the Bayonne Bridge is not raised,” Drewry said, “it will not be possible for 13,000-TEO neo-Panamax containerships to operate from Asia to the U.S. East Coast.”

The G6 Alliance’s new NYX service will call at the Global Marine Terminal that doesn’t require a transit under the Bayonne Bridge.

According to Drewry’s Container Freight Rate Insight, there is a shrinking freight rate differential for Asia-U.S. East Coast services compared with Asia-U.S. West Coast loops. At the peak of the West Coast slowdown last year spot rates for 40-foot containers from Asia to the East Coast where as much as $2,800 higher than to the West Coast. “Since then spot rates on both legs have come down steeply,” noted the report. Now the differential is now less than $1,000.

If, as expected, the ocean shipping alliance structure will change dramatically in April 2017, with the number of alliances reducing to three, the process of moving to fewer services with bigger ships could be aaccelerated, according to Drewry.

“Until then, we don’t expect any drastic Asia-USEC network reshuffling,” Drewry concluded. “The direction of travel on the Asia-USEC via Panama trade is unstoppably moving towards bigger ships and fewer services, but the speed at which this process takes place will be restrained.”