Container Port Traffic and Transshipment Traffic around the Caribbean Basin, 2008

Source: American Association of Port Authorities. Transshipment data adapted from Drewry Shipping Consultants.

Container Port Traffic and Transshipment Traffic around the Caribbean Basin, 2008-10

The Caribbean Basin is a region prone to transshipment activities, particularly for the following factors:

Proximity to shipping lanes. Transshipment activities tend to converge in proximity to main long distance shipping lanes to avoid undue detours. The Panama Canal essentially acts as a funnel for shipping lanes between the Atlantic and the Pacific oceans. It is thus not surprising that ports on both sides of the canal (Balboa and Colon) have a dominant transshipment function as stopping to enter the Panama Canal offer the opportunity to drop or pick up cargo. Kingston, Jamaica has a central location, in proximity of the Gulf of Mexico, the East coast and transatlantic routes. On the Pacific Coast, both Manzanillo (Mexico) and Callao (Peru) offer transshipment opportunities for the transpacific and South American shipping routes.
Costs and land availability. An important factor in transshipment remains costs, with ports locating in developing countries having much lower labor costs. Miami would be a logical location for transshipment, but due to higher costs and cabotage restrictions (Jones Act) nearby Freeport (Bahamas) assume that role. Several global terminal operators such as DPW (Puerto Caucedo) and HPH (Freeport, Cristobal and Balboa) have invested in terminal developments in part because several Caribbean port sites have room for expansion with the site selected with higher depth in mind to accommodate the new generations of containerships. One of the prerequisites of a port location, the quality of hinterland access, thus plays a much less important role.

Most of the transshipment activities take place within what is known as the "Caribbean transshipment triangle" that roughly encompasses Colon, Freeport and Port of Spain at each of its edges. It is expected with the expansion of the Panama Canal to accommodate ships of 14,000 TEU that transshipment activities in the Caribbean basin will increase significantly. Yet, these expectations need to be mitigated by the following:

Lower aggregate demand. The fast growth opportunities that have prevailed until 2007-2008 are unlikely to continue due to various technical, economic and demographic factors. On the medium term, the global container throughput could be leveling off, implying less demand for transshipment or at least less growth opportunities.
Economies of scale. Since the expansion of the Panama Canal was designed to accommodate larger ships, expanding economies of scale on routes that were previously limited to 4,200 TEUs could lead, at least initially, to less ship calls and the concentration of traffic at specific hubs.
Response from West Coast ports. As the Panama Canal is competing with ports along the American West Coast to access some North American markets, including the East Coast (landbridge versus all-water routes), West Coast ports will implement various strategies to improve their competitiveness with a revision of their fares, rules and connectivity with their hinterlands.
Response from railways. In light of the previous point, railways, particularly those servicing the West Coast (BNSF and UP), will also implement strategies to improve their competitiveness. For instance, since 2000 many have already committed substantial capital investments to improve long distance corridors. The outcome will be a more efficient maritime / land interface along the West Coast. There is however a possible dichotomy with railways servicing the East Coast (NS and CSX) as a growth of the all-water traffic may benefit them with inland services calling from the East and Gulf coast ports. For instance, NS completed in 2010 the double-tracking and double-stacking of a rail corridor between Hampton Roads, Virginia and Columbus, Ohio; labeled the Heartland Corridor.
New gateways. Two new port gateways have been established in recent years, both with the support of major rail operators. In Canada, Prince Rupert capitalizes on shorter transpacific distances and a dedicated and uncongested rail corridor to Chicago. In Mexico, Lazaro Cardenas with a rail corridor operated by KCS up to Kansas City, offers a new corridor in tune with the NAFTA trade.
Shipping costs. Since the choice of routing options dependents on comparative costs, two variables influence the Panama Canal route option. The first is fuel (bunker) prices. Higher prices incite maritime shipping companies to reconsider routing options, network configuration and the type of ship. The second cost variable concerns tolls levied on cargo (containers) transiting through the Panama Canal. As the expansion of the Panama Canal came with substantial capital investments, there will be pressures on the Panama Canal Authority to amortize the contracted debt through higher tolls. This creates a conundrum since higher tolls undermine the attractiveness of the Panama Canal as a routing option.
Competition from Suez Canal and Mediterranean hubs. The usage of the Suez Canal as a routing option to service East Coast ports has increased in the last decade, particularly with the growth of transshipment activities around the Mediterranean basin. Mediterranean transshipment hubs offer additional opportunities to consolidate Asian and European cargo and employ larger ships.
Regionalization of production. A substantial share of the growth in global trade over the last two decades was based upon the exploitation of global comparative advantages, particularly in Asia. The rise in labor and energy costs is mitigating this process and incite supply chain managers to consider closer sourcing alternatives. The outcome would be a more regionalized production system that relies less on long distance shipping.