Following nearly two years of construction delays, one of the largest and most anticipated infrastructure projects in the world reached completion this past June; on June 26, the Chinese-owned container ship COSCO Shipping Panama voyaged through the new and expanded Panama Canal. One month later, on July 26, a Chinese container ship suffered a large gash in its hull after hitting a wall of the recently widened canal. The third accident of its kind since the upgraded canal opened, the incident has bolstered concerns that the passageway is still too narrow to safely operate the larger, wider, deeper “neo-Panamax” sized vessels designed specifically to cross the expanded canal.

As we wrote in our late-2015 article, “Redrawing Global Shipping Routes: The Panama Canal Gets an Upgrade,” the nine-year, $5.4 billion Panama Canal expansion to include a third set of locks was planned and funded with the aim of reducing traffic and improving cargo capacity. During its planning stage, the expansion was expected to generate $2.1 billion of incremental revenues for the state-owned Panama Canal Authority. Its primary objective was to allow for the use of the canal by ships more than double the capacity of the pre-expanded passageway. Between 12 and 14 additional ships were expected to use the canal daily, reducing traffic jams and wait times at both ends. The planned third traffic lane would be a wider, deeper thoroughfare for canal users. In response to the upgrade plans, shipbuilders began as early as 2009 to build larger vessels designed specifically to fit an expanded canal, which was initially planned to become operational in fall 2014.

However, recent concerns over the ability of bigger neo-Panamax ships to safely navigate the new locks may undermine the economic benefits that builders, owner-operators and capital providers behind the neo-Panamax tanker fleet had sought to achieve.

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Plagued by collisions since its opening, the canal’s 427-meter-long by 55-meter-wide new locks now seem to be too small to accommodate the larger neo-Panamax vessels, which can measure up to 366 meters long and 49 meters wide. The bigger ships would have just 6 meters width clearance in total, allowing for only a 3-meter safety buffer on either side of the vessel. Certain industry experts are saying that this would provide an insufficient buffer given the tropical weather patterns along the canal. A recent study conducted by the International Transport Workers’ Federation (ITF) and Brazil’s Fundação Homem do Mar (FHM) found that under windy conditions, the maneuverability of neo-Panamax vessels may be compromised by the canal’s new dimensions. Further muddying the waters, the study identified substandard concrete pouring methods in the passageway’s newer lock components that appear to have resulted in cracks and air gaps within the slabs. The potential costs associated with the prospect of an accident are substantial for both shippers and insurers; a report by Allianz Global Corporate & Specialty estimates an additional $1.25 billion of insured goods will pass through the locks on a daily basis, calling for active risk mitigation on the part of insurers.

Potential challenges to neo-Panamax economics extend beyond the canal’s specifications alone. Channel depths at ports of calling must also accommodate the upgraded, larger fleet of vessels. Whereas a standard (pre-expansion) Panamax ship could be accommodated by a 35-foot-deep ship channel, vessels carrying 5,000 TEUs require a berth depth of at least 42 feet, and in the case of those carrying 10,000 TEUs or more, a 50-foot depth is required. U.S. ports are preparing for callings by neo-Panamax vessels, but the full extent of ship channel dredge work needed to accommodate these bigger vessels may still take years to complete.

Port authorities along the Eastern Seaboard and Gulf of Mexico expected to see a windfall of port calls by newer, larger container vessels. The Panama Canal’s expansion prompted a “race to the bottom” for U.S. container ports along the Eastern Seaboard. Virtually every major East Coast port of call for cargo vessels is in the process of planning and funding dredging projects for deeper, more safely navigable ship channels. Some are ahead of the curve, with ports in New York, Baltimore, Norfolk and Miami each recently completing 50-foot draft projects. The remaining ports all have plans to dredge their ship channels to deeper depths, but dredging projects are notoriously plagued by delays in planning, environmental studies, regulatory approval and ultimate funding. Case in point: It was 1999 when Congress first approved a dredging project for the port of Savannah ship channel. After 16 years in planning, the $706 million project broke ground in fall 2015. The Army Corps of Engineers is projecting an “earliest” completion date of 2021 for the project, which will add a total of 5 feet in draught depth to the 40-mile Savannah ship channel.

Not all dredging projects take three decades to complete, but if Savannah’s recent undertaking is any indication, it may be years still before other ship channels – for instance, Houston’s 52-mile, 45-foot-deep ship channel – are ready for port callings by the new, larger neo-Panamax fleet.

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