New lock will accommodate ships that can carry 7,000 to 20,000 tonnes more grain
CHICAGO, Ill. — One of the world’s most efficient grain shippers is about to get better.
The third lock of the Panama Canal will transform the way U.S. corn, soybeans and wheat moves to export markets when it opens for business.
“It certainly gives more shipping options and it gives a compelling rate advantage,” said Ken Eriksen, senior vice-president of transportation with Informa Economics.
The third lock was initially supposed to open this year, but labour and construction delays have pushed the projected opening date back to the first quarter of 2016.
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The new lock is 52 percent deeper, 64 percent wider and 40 percent longer than the other two locks.
It means the third lock can accommodate much bigger ships, which can carry 7,000 to 20,000 tonnes more U.S. grain heading to overseas markets.
Shippers will need fewer boats, which will result in big ocean freight cost savings.
U.S. growers already have a huge transportation advantage over competitors in Brazil and Argentina because of the country’s vast inland waterway system and extensive rail network. It is much cheaper to ship grain by rail than truck and even cheaper by barge.
Eriksen said the efficiencies associated with the third lock and reduced congestion on the other two lock systems will increase that competitive advantage.
He said a lot more U.S. grain and oilseeds will move on the Mississippi River system to ports on the Gulf of Mexico, where it will be shipped through the Panama Canal to markets such as China.
Informa has said that reduced ocean shipping rates will expand the drawing area for the river system to 260 kilometres from 113 km.
“It will certainly make the river more competitive against the rail.”
The catchment area will cover 49.6 million acres of soybeans, up from today’s 26.7 million acres.
“That’s about two-thirds of the U.S. planted area,” Eriksen told the DTN Ag Summit 2014.
The waterway system will start sourcing grain in areas where grain companies have built expensive rail shuttle facilities to improve their shipping economics. It could force railways to consider rerouting grain to the river system instead of transporting it all the way to the ports.
Eriksen said grain terminals at ports in the Gulf of Mexico have been expanding their capacity in anticipation of the opening of the third lock in Panama.
Meanwhile, operators of the Suez Canal are dredging it in an attempt to compete with Panama.
“(As well), there is a Nicaragua canal that is being pushed. They’re supposed to start construction on Dec. 22 with a $40 billion investment from a Chinese investor,” said Eriksen. “So it could be very interesting to see the competition out there for ocean trade routes.”
He believes some Canadian grain might be shipped by rail to the Mississippi River in coming years to take advantage of Panama’s new shipping efficiencies, or it might replace some U.S. grain moving to export markets.
Eriksen said the U.S. has been losing some of its transportation and sustainability advantages over Brazil because of the “phenomenal” investment in infrastructure occurring at Brazil’s northern ports.
For example, Bunge has spent $300 million on a barge loading facility and export terminal in that country.
“The competition is coming, and those facilities are going to reduce transportation costs by about 30 percent, and that’s without much investment on the inland transportation system,” he said.
Brazilian farmers have traditionally had to haul their soybeans nearly five times further than U.S. farmers to get the product to port.
The soybeans move by truck, which is not environmentally friendly. The result is that one Panamax shipment of soybeans from Brazil emits 30 percent more carbon dioxide than one filled with U.S. soybeans.
The expansion of the northern ports will cut trucking distances and emissions, and improve Brazil’s ability to compete.
