Container ship Cosco Houston passes through a new lock during a test of the expanded Panama Canal, June 23, 2016..RODRIGO ARANGUA/AFP / Getty Images
The Cosco Shipping Panama will be the first ship to mark the opening of the expanded Panama Canal on Sunday. The Chinese container ship will glide past dignitaries, politicians and shipping executives on hand to celebrate the inauguration of the $5.2-billion (U.S.) project that took nine years and doubles the capacity of the trade route linking the Atlantic and Pacific oceans.
But when the blue-hulled freighter eases into the Pacific Ocean for its journey to South Korea, it will be sailing back into the worst shipping market in years.
A glut of ships, low charter rates and plunging cargo volumes have roiled the industry, which has resorted to alliances, mergers and bankruptcies.
Neil Davidson, an analyst with Drewry Shipping Consultants Ltd. in London, said slowing growth in cargo volumes and falling freight rates means the canal is expanding in a rocky market.
"It's pretty subdued," Mr. Davidson said, noting container traffic is growing at a pace of just 1 or 2 per cent a year, compared with as much as 10 per cent in the early 2000s.
"It's growth but it's much slower growth than before," he said by phone.
The canal's expansion "certainly will allow them to deploy bigger ships, but the underlying issue of there being too many ships is still there, so it's still a tough time."
Sunday's official opening of the project has been delayed by leaks, labour disputes, and this spring has been threatened by a water shortage blamed on a dry spell in the region.
"It is a big event," Mr. Davidson said. "The Panama Canal is one of the key arteries in world shipping and until now has been one of the key limitations on ship size as well. This expansion of the locks is pretty significant in the shipping world."
The Panama Canal's new locks allow the passage of ships that can carry as many as 14,000 containers, up from the previous 5,000. Vessel owners will enjoy lower per-container costs that could be passed along to shippers of goods, Mr. Davidson said.
There are more than 230 of the larger container ships, known as New Panamax, sailing the oceans, accounting for about 18 per cent of total capacity, said Craig Jallal of London-based consultancy Vessels Value.
Another 37 are due to be sailing by next year.
Mr. Jallal predicted the older, smaller ships will be deployed on other routes and spur a new round of vessel scrapping as their values fall along with the rates the owners can charge.
Mr. Jallal called the canal's increased capacity and shorter voyages to key markets "significant," but said it is too soon to assess the impact. The majority of the ships using the expanded canal are expected to remain container ships – a premium class that can afford the passage rates that can reach $500,000 (U.S.). Ships bearing liquefied gas are expected to be big users, as well, Mr. Jallal said.
For shippers moving goods to the eastern half of the United States from Asia, the expanded canal could make those destinations ports on the U.S. East Coast a more affordable option than West Coast ports, which can already accommodate the larger ships.
For shippers moving goods to the United States from Asia, West Coast ports remain the fastest gateways to the densely populated U.S. centres in the eastern half of the country. However, these same markets can be reached at a cheaper price through the East Coast ports, a Boston Consulting Group study said.
However, many of the large ports on the U.S. East Coast – including the key New York City terminal – are not ready to accommodate the larger ships, raising the prospect large vessel owners will skip the entire coast.
The Port of Halifax is expecting a boost in Asian trade with the widening of the canal, and is already receiving ships carrying more than 9,000 containers. Lane Farguson, a port spokesman, said the New Panamax ships with more than 13,000 containers are expected to begin calling in 2018.