COROZAL PORT PROJECT

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2 COROZAL PORT PROJECT Panama Canal: 100 Years Connecting the World Since its opening in 1914, the Panama Canal serves world trade, shortening distances, time and transportation costs between production and consumption centers. Today, the Panama Canal connects 144 maritime routes, reaching 1,700 ports in 160 countries. This international trade artery is also an important driver of Panama s economy. In fiscal year 2014, the Panama Canal Authority (ACP) contributed US$1.03 billion to the National Treasury, 6.6 percent more than budgeted. Tonnage and Transits Evolution: Tonnage and transit indicators through the Panama Canal grew proportionally up to the mid-70s when larger tonnage vessels were deployed. In the early 80s, traffic stabilized in the range of 12,000 to 14,000 transits per year, while the tonnage continued to grow. Refer to Figure Nº 1. In the last two decades, the main contributor for tonnage growth, measured in Panama Canal Universal Measurement System (PC/UMS), has been the full container ships segment, due to the growth of world trade and globalization. The increase in free market economies, the removal of trade barriers and the signing of free trade agreements have encouraged the location of production facilities at sites with lower labor costs, commonly distant from the main centers of consumption. Since its opening, the bulk carriers led Panama Canal transit levels, until 2001, when China s entry into the World Trade Organization (WTO) changed this pattern. Immediately, the container segment showed a rapid growth that impacted the tonnage through the Panama Canal. Later, this segment suffered a contraction due to the global economic crisis in 2008, which lasted until 2010 (Refer to Figure Nº 2). Between 2011 and 2012, this segment showed signs of recovery. However, since 2013, there has been a decrease. Figure Nº 1: Transits vs Panama Canal Tonnage FY FY2014 2

3 140,000, ,000,000 PC/UMS Tonnage in millions 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 Refrigerated Dry Bulk Liquid Bulk Container Vehicle Carrier/RoRo Passengers Others Fiscal Year Figure Nº 2: Evolution - Tonnages by segment FY The competitiveness of the container segment has been affected due to the construction of bigger vessels that are not able to transit through the current locks system. At the end of fiscal year 2014, the container segment accounted for 46 percent of Panama Canal transit revenues. The new locks will handle larger container ships with a capacity of 5,000 TEUs to 13,200 TEUs. Panama Canal Expansion Program After years of analysis indicating that larger vessels would be deployed and that the Canal would not have the capacity to meet future transit demands, the Panama Canal submitted a proposal to expand the existing canal to a national referendum, which was approved by the people of Panama on October 22, The main objective of the Canal Expansion is to increase capacity and satisfy the increasing demand of transit service while improving the Canal s competitiveness. The Panama Canal Expansion consists on the construction of new lane of traffic along the waterway through the construction of a new set of locks to double the waterway s capacity. Figure Nº 3 shows the dimensions of the new locks. Figure Nº 3: Current and New Locks 3

4 With the Panama Canal Expansion, Panama becomes a backbone for international trade and a strategic partner for several countries using this route. Port Growth and Relationship with the Panama Canal Annually, the compound aggregate growth of Panamanian container ports between 2001 and 2012 was 14% percent. After a decline in 2013, the level of container movements were recovered in 2014, as shown in Figure Nº 5. The Panama Canal is the backbone of the country s logistics assets. The modernization of Panamanian ports began in the early 90 s through concession models granted to international private port operators, such as Manzanillo International Terminal (MIT), Colon Container Terminal (CCT- Evergreen) and Panama Ports with two terminals (PPC-Cristobal in the Atlantic and Balboa on the Pacific). In 2011, Port of Singapore Authority (PSA) entered the market. Refer to Figure Nº 4. Figure Nº 4: Panama Port Development 4

5 8.00 Panamanian Port Throughput (million TEU's) Million of TEU's Figure Nº 5: Panamanian Port System Throughput In recent years, the Panamanian Port System has been affected by different factors. Some terminals have experienced labor issues that have created delays in the service. Additionally, port terminals on the Pacific side have been operating very close to capacity, affecting their operation efficiency. Located on the West side of the Pacific entrance to the Canal, the PSA terminal has limitations related to its rail and road connectivity to the Atlantic ports. In regards to the ports on the Atlantic side, two of them have expansion plans. In addition, there has been a decline in container vessel transits through the Panama Canal because of redeployment of larger container ships through the Suez route. This migration is due, mainly, to the new ships that were built and started operations but are unable to transit through the current Canal. Once the new locks are operational, it is expected that these vessels will be redeployed through the Panama route. A natural consequence of the Panama Canal Expansion is the deployment of Neo-Panamax vessels. By deploying these vessels through Panama, it would be optimal to do transshipment operations as close as possible to the Canal route to interconnect different sub-markets in one containerized cargo hub. In the case of Panama, a convergence of trade in the east-west with north-south routes of the Americas is generated, which provides the opportunity for greater transshipment demand that requires more port capacity. There is the potential to capture transshipment volume expected after the Expansion is completed by offering greater port capacity in the Pacific sector. Pacific Coast Port Development: If we do not increase port capacity in the Pacific, the additional transshipment volume that would arise from the Canal Expansion, would have to be handled in other regional ports/hubs such as Buenaventura (Colombia), Lazaro Cardenas (Mexico) and Callao (Peru) in the Pacific Coast, and Cartagena (Colombia), Caucedo (Dominican Republic), Kingston (Jamaica) and Freeport (Bahamas) in the Atlantic. Panamanian ports are located naturally closer to the interoceanic route, but if port capacity is not increased, shipping lines would have to transfer their operations to other ports in the region. This would adversely affect the logistics/port competitiveness of the route, with subsequent loss of potential revenue for the country. Refer to Figure Nº 6. 5

6 Corozal Port Project: The Panama Canal, with the support of international consulting firms, has been undertaking several studies for over two years for the development of a new port in the Corozal area of the Panama Canal. The studies evaluated demand projections, conceptual design of the terminal, business models, financial analysis, risk assessments, preliminary environmental studies and social impact assessment of the project. Figure Nº 6: Other Ports/Hubs in the Region Note: Numbers indicate port movements and port cranes in Based on these studies, a prequalification and public tender process was approved to grant a concession to a port operator for the design, construction, equipment provision and operation of a transshipment container port in an area in Corozal which is under Panama Canal jurisdiction. This will include the construction of a wharf, container yard, superstructures, such as offices, warehouses, stores, sheds and/or other infrastructure required for the efficient operation of the port, in return for a concession payment to the Panama Canal using fixed and variable rates. See location on Figure Nº 7. Figure Nº 7: Location of Corozal Port 6

7 The new terminal will be built within a 120-hectare area that is currently owned by the Panama Canal. The new port terminal will also include the construction of port facilities capable of handling Neo Panamax vessels. With a terminal of 16.3-meter-deep access canal and a depth of 18 meters along the dock, the new facility will provide docking facilities for five Neo Panamax ships. The port will have the capacity to handle more than five million TEUs. The two-phased port project will include the construction of a 2,081-linear-meter dock, a container yard, offices and warehouse facilities within a 120-hectare area owned by the Panama Canal. The project s first phase will include 1,350 linear meters of quays, a container yard, superstructures, and three docking positions for simultaneous calls by Neo Panamax ships, and an approximate handling capacity of three million TEUs annually. The second phase will include 731 linear meters of quays, with an additional capacity to operate and manage two additional Neo Panamax ships and approximate handling capacity of two million TEUs annually. Refer to Figure Nº 8. Figure Nº 8: Corozal Port The contract will, most likely, consist of a 20-year concession, renewable for 20 additional years. Social Benefits and Environmental Aspects Throughout its construction between 2016 and 2018, it is expected that the terminal could generate an estimated 1,300 direct jobs. During the first phase, an estimated 800 workers could be required for its construction, depending on market demand conditions. When operational, the terminal could require up to 2,600 direct employees to efficiently manage the project s first phase. Once the second phase starts, it is estimated that 3,800 direct jobs will be created. To better benefit the neighboring communities, the Corozal Port will be constructed and operated under the green port model to: Protect the community from harmful environmental impacts that may result from port operations; Reduce greenhouse gas emissions and other emissions from port operations; Use the best technology available to prevent or reduce environmental impact; Promote sustainability; Position the port as a leader in environmental management and compliance; Implement sustainable practices in the design, construction, operation and business processes in the port; Improve environmental performance of port structures while maximizing long-term economic benefits. Taking into account these principles, the terminal considers the use of electrical equipment to reduce CO2 emissions from port equipment, as well as the use of leading edge technology to supply electric power to vessels, resulting in reduced CO2 emissions produced by ships while at berth. In general, the goal is to keep stakeholders, including local communities and authorities, informed on the project s progress. 7

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