Quijano: We Have Had to Come Out of Our Shell

Since the inauguration of the expanded Panama Canal on June 26, 2016, the waterway has broken numerous records, including monthly and annual tonnage volumes.

The USD 5.4 billion expansion project has seen the construction of a new set of locks on the Atlantic and Pacific sides of the waterway, creating a second lane of traffic and doubling the cargo capacity of the canal.

The Neopanamax locks have allowed much bigger ships to transit the canal, tripling the size of boxships that can fit into the locks, and doubling the size of bulk carriers and passenger vessels that can use the waterway.

The expanded project has paved the way for a rise of shipping traffic to the U.S. East Coast and opened up an opportunity for new trades to use the canal such as LNG.

Just last month, the newly constructed cruise ship Norwegian Bliss made headlines as it became the largest passenger ship to squeeze through the expanded locks, only a month after the canal authority announced the passage of three LNG carriers through the locks in a single day.

Now that the canal is celebrating the second anniversary of the opening of its third set of locks, World Maritime News sat down with Mr. Jorge Quijano, Administrator of the Panama Canal, to discuss the emerging trade trends at the canal and priorities for the future.

Commenting on the recent developments Quijano said “records happen, and we are not necessarily looking for records. We do announce them when they happen as it keeps the people alert on what will happen next.”

“However, we are very much focused on having good relations with our customers and providing them with a good product. In practice this means providing a passage through the Panama Canal at a price that represents a good choice for owners and having safe transits and reliability, which is our number one priority.”

Key growth drivers

Speaking about the major drivers of growth at the canal, Quijano said that the strongest growth was recorded in LNG trade.

“It was never a trade for us before 2016 as no ships from that sector could fit through the canal. With the latest expansion program we looked at the sizes of vessels that were out there and we focused more on the container trade size of vessels ranging between 12,000 and 13,000 TEU. Right now the canal can transit a vessel of 14,863 TEU bringing a considerable amount of more revenue,” Quijano said.

“That happened to accommodate very well 90 pct of the LNG vessels in operation worldwide. Hence, we went from zero metric tons in 2016 to 6 million metric tons of LNG in 2017 passing through the canal. In 2018, we expect to reach 11 million metric tons, followed by 15 million and 30 million metric tons of LNG in 2019 and 2020 respectively.”

The canal expansion was expected to result in small trade of LNG coming from Trinidad and Tobago. However, with the fracking of shale, the United States (U.S.) emerged as a major exporter of LNG.

Two LNG projects, Sabine Pass in Louisiana and Cove Point in Maryland, have come online since 2016, with four more projects scheduled to start operation shortly, bringing the U.S. export capacity to 9.6 Bcf/d by the end of 2019.

The US is projected to become the third-largest LNG exporter in the world by 2020, according to U.S. Energy Information Administration (EIA).

Is the canal overbooked?

“We don’t overbook, actually, we underbook. That is why sometimes we are able to conduct more transits in addition to our booking slots,” Quijano said.

“Sometimes when speaking with customers they say that they have a ship coming to the canal in around six days but are considering to go to the Cape of Good Hope as all our booking slots are taken. In such cases we search for the next best available slot to accommodate them as there are days when we have extra space.

“On Mondays, Tuesdays and Wednesdays we have extra space and sometimes only three ships cross the canal via Neopanamax locks on these days.”

For the rest of the week, predominantly all days are fully booked, especially over the weekends, he explains.

“For ships that don’t need to come through the canal on Sundays, such as those carrying LNG, we suggest they delay their crossing for one day, for example for Monday, when there is enough space,” he added.

Another issue being closely monitored at the moment is that some transporters book more than one slot for one transit.

“We don’t want that, because it creates the appearance that the canal is full. This year, in the next months or so, we will see some changes in the booking system to deter such practices,” Quijano pointed out.

“We will make some adjustments so that the booking, for the LNG trade for example, cannot be made so far in advance. The aim is to have the bookings reserved closer to the very transit enabling us to have the real picture and have one booking for one transit.”

Quijano said that due to the technology available today, employees at the canal authority are able to track vessels and check what is their actual position and proximity to the canal and compare that data with the booking dates.

“We sometimes have ships with booked slots for tomorrow and their AIS information shows that they are in Australia,” Quijano said.

As explained, a great number of such bookings don’t get cancelled.

“This is when we call them up and try to free up the space for ships that are closer to the canal and encourage the latter ones to use the slot.”

“We have had to come out of our shell. We are taking a different approach from that one we had three years ago. Now that we have finished our locks we want to fill them up and the only way of doing that is to knock at people’s door and not just wait for them to show up.”

“It is a new business and it is becoming ever more dynamic.”

Speaking of the way forward in that respect, Quijano noted that the canal authority wants to have a digital system that based on a vessel’s tracking data detects whether the ship will meet its transit date. By being aware of situations when that is not the case, the authority can make the final approach to the customers and eventually take some action.

“The idea is to give us enough time for the cancellation to take place so that other traders that may have not opted to take the canal route can do so,” he said.

“We are talking directly to customers and decision makers about the route they are going to take and try to influence their decision to come to the canal. In this way we want to use the extra capacity that we are not using now so it doesn’t go to waste. 

“There are a lot of challenges there, but we see our future in incorporating more technology into operations. This will give us more awareness about what our customers are doing and where they are so we can serve them better.”

Toll structure

According to Quijano, the key factor when deciding on the structure of tolls and their potential revision on annual basis is the competition, as well as charter rates for each specific sector and the price of fuel.

“We try to offer to all of the segments different toll numbers. Tariffs are based on what each segment can actually afford to use the Panama Canal. I never talk about toll increase for the sake of increasing. We are in a competing market and we don’t want to overprice, but we want to get the right revenue from the service that we give,” he added.

In addition, companies using the Panama Canal are given points as an incentive to use the waterway as they produce less emissions by taking the shorter route.

“For example, ships heading toward the East Coast going through the Panama Canal will be given additional points providing them with a better ranking that in turn helps a company to secure a reservation with us,” he explained.

“We are pointing into a direction where we are trying to have a greener world by favoring those that use our route resulting in less emissions on a global scale.”

Quijano said that in the last revision of tolls, container lines were offered lower rates to encourage them to take the canal on their return tips from the U.S. to Asia.

Dispute with tugboat captains’ union

Commenting on the recent dispute with the tugboat captains that refused in April 2018 to conduct transits through the expanded locks citing safety concerns, Quijano said that there was no room for fears over security of transits through the locks.

The issue has been caused by the removal of additional crew members from tugboats now that the training period for handling vessels in the new locks has been completed.

The standard, certified tugboat crew is comprised of four members, two seamen, one marine engineer and one captain. In 2016, this number was increased to 6, adding one more deckhand and one more captain to learn the ropes in the testing stage of the new locks.

Quijano said that initially there had been some winch failing issues at the new locks which have been resolved with the manufacturer. However, as a precautionary measure an extra deckhand was kept on board. Now that the issue has been dealt with, the time has come to reduce the number of crew members to four as it was originally planned.

“Throughout this period they always wanted us to change the structure of the crew and make it official in the safety and marine inspection certification, which never happened as we never agreed that this was what was required,” he said.

He further added that a much larger crew was being deployed on the vessel being transited through the locks and that the safety of ships was never taken lightly.

“The situation in Panama Canal is no different from that in other locks such as in Terneuzen, Ijmuiden, or Berendrecht, where even bigger ships are handled with tugboat crews comprised of three people. We have more people on board than in Europe, China or Japan,” he noted.

The tugboat crews at the canal work eight hour shifts five days a week. However, regular shifts can sometimes be extended due to work requirements depending on the number of transits.

“The number of ships transiting the locks doubled with the new locks so we required our crews to work an additional day during the week, resulting in six days per week,” he said.

The canal has already reduced the number of additional crew members and plans to cut this number further with the removal of the second tugboat captain starting July 1. This would allow for further reduction of overtime work, he went on to say.

Quijano pointed out that there is always a safety risk when working in ports or ships with ropes under tension.

“There have been accidents, unfortunately, but they have nothing to do with the number of crew members on board tugs. These have been mostly related to the seamen being in the wrong place at the wrong time.”

Fourth locks?

There have been a lot of hints that the Panama Canal Authority might be considering further expansion and investing into a fourth set of locks at the waterway, targeting even bigger ships.

“Being a fresh water canal, one of our highest concerns is the fact that we need to have enough water. I would never entertain an idea of a fourth set of locks without an additional reservoir to provide the water,” Quijano stressed.

Namely, a third reservoir would have to be built in addition to the two existing ones, in order to construct the fourth set of locks. Quijano explained that the project would be physically possible.

About a year and a half ago, the Panama Canal Authority was contracted by Panama’s Ministry of Environment to look into several options for a new fresh water reservoir. The canal authority is in charge of the project management for the ministry, and subcontracting of different experts and consultants working on the conceptual design and all other required studies in the areas where another reservoir could be built.

“We are at mid-point of that project and by this time next year we should have a conceptual design of another reservoir. If approved, that would give us an additional water resource in approximately four years time.

“Based on our findings, it seems to be feasible to build another reservoir in an area next to the canal that would give us the opportunity then to build the fourth set of locks,” he said.

However, things are far from simple, as numerous factors would have to be considered in the new expansion project, including whether there is demand to build it bigger.

There is an emerging trend of construction of ever bigger ships, especially in the container shipping sector where ships are likely to reach even 24,000 TEU.

When asked whether this sector was an interesting market, Quijano explained that it was a matter of how many ships of that size would use the canal in order to warrant for making such an investment.

Owners have often been lured into ordering these sea giants by cheap newbuilding prices at the yards. However, Quijano believes that the industry really has to ask itself: is it really worth it?

“When you look at those vessels, my question is how will the liner companies fill them, because, based on my experience, even ships of 10,000 TEU or 13,000 TEU often don’t get filled,” he said.

Another key factor to consider, according to Quijano, is the amount of investment which would probably exceed the previous USD 5.4 billion reaching up to USD 11 billion.

“Will you have the additional amount of revenue to be able to pay for that, or will it come to a point of diminishing returns, when a considerable investment that you made gives you only a little bit?” he asked.

Interview by Jasmina Ovčina Mandra