The Economic Commission for Latin America and Caribbean (ECLAC) in their July report “The effects of coronavirus disease (COVID-19) pandemic on international trade and logistics” outlined the myriad impacts that the pandemic induced recession has had on Latin America’s supply chain.
The pandemic’s economic impact [see article on page 2] was widespread in the LAC region. In some countries, the demand for primary commodity exports all but dried up as manufacturing in China and other parts of Asia, Europe and US slowed to a crawl. Equally, imports to the region fell off as the money tightened in the region. Perhaps less talked about was the damage that the complete shutdown of the tourist sector had on the LAC. The report noted, “The situation [“paralysis of tourism”] is particularly worrying to Caribbean countries, where tourism accounted for 45% of the total exports of goods and services in 2019. In this context, the value of Caribbean exports of goods and services is expected to fall by 40% in 2020.”
Latin American Seaports
Latin America’s seaports, like virtually all seaports, were impacted by a drop in seaborne traffic. Although the report suggests there was a -6.1% year-on-year change January-May 2020 compared to 2019 % in containerized traffic, the volumes at the region’s main boxports were only marginally off (-1%). ECLAC surmises the “difference between the two figures is explained by the fact that other operational and trans-shipment movements offset the drop in containerized international trade.”
Another key finding was that despite the drop-in container volumes, shipping freight rates to the region increased compared to 2019. “From the end of April, rates began to rise steadily, and by 2 July 2020 they were 48% higher than the previous year. This suggests that the [container shipping] industry was able to manage supply [ship calls] thus achieve a price level that allowed it to partially offset the decline in demand caused by COVID-19.”
One of the dynamics influencing services and pricing in the Latin American container trades is the concentration of shipping in relatively few hands. While this is not exclusively a Latin American phenomenon, the impacts are nonetheless significant for the region. As the ECLAC report details, back in 1992 thirty steamship lines accounted of 63% of the container fleet. Shortly later, in 1998 six ocean carrier alliances were formed representing around half of the container fleet [in terms of TEUs]. By 2018 the combined market share of the three alliances was nearly 70% of the TEU capacity and currently the market share has risen to 84.2%.
As a result of the shifting of ocean carrier schedules [blank sailings reduced schedules], during the pandemic, Latin American ports were divided into have and have nots. Ports like Buenaventura, Colombia or Valparaiso, Chile dropped 32.9% and 28% respectively on the January-May period 2020. Conversely, ports like the Brazilian ports of Santos, Itapoa and Paranagua, all posted between 7%-9% increases during the January-May 2020 period. However, the big winners in terms of increase in TEUs were the ports of Rosario, Argentina 10.5%, Bahia de Cartagena 11.7%, Panama Caribbean Coast – 3 terminals 14% and Panama Pacific Coast 2 Terminals 17.4%. Not unexpectedly, vertical integrated terminals fared better than conventional terminals. The report notes, “For example, at the end of March integrated terminals handled 68% of containers in Buenos Aires and 49% in Brazil… in the port of Callo (Peru) they [integrated terminals] moved 41% of the total and in the Caribbean…35% of the total trans-shipments”.
Panama Canal and COVID-19
As the numbers above show, the Panama Canal’s traffic in the COVID pandemic was relatively robust. The Panama Canal recently closed their books on fiscal 2020 (October 1, 2019-September 30, 2020) and it was a tale of two halves. According to the release issued by the authority, fiscal 2020, “painted two different pictures for the Panama Canal, with a first semester that exceeded expectations, followed by another that saw a pandemic begin to disrupt lives and economies worldwide.”
The pandemic’s impact peaked between May and July (2020) when transits through the Canal declined by 20%, “mainly due to reductions in passenger ships [as the global cruise industry virtually was halted by the pandemic], vehicle carriers and liquefied natural gas (LNG) tankers [as cancelations for exports from the US to China and elsewhere dried up with falling demand]”.
However, cargo movements – particularly containerized freight – “normalized in August and September” which boosted the waterway’s volumes to close at 475.1 million tons PC/UMS – surprisingly eclipsing the 469 million tons PC/UMS record set in fiscal 2019, although a 4% drop from pre-COVID projections. [Editor’s Note: The Panama Canal/Universal Measurement System (PC/UMS) is based on net tonnage, modified for Panama Canal purposes. PC/UMS is based on a mathematical formula to calculate a vessel’s total volume; one PC/UMS net ton is equivalent to 100 cubic feet (2.83 m3) of capacity.]
Overall, the Panama Canal ended its fiscal year with 13, 369 transits, a 2% reduction compared to projections. Containerships remained the leading segment transiting the Panama Canal, registering 166.3 million tons PC/UMS or 35% of the Canal’s FY20 tonnage, followed by: Bulk carriers: 80.9 million tons; Tankers/chemical tankers: 69.2 million tons; LNG: 46.4 million tons and LPG: 44.6 million tons. According to the authority “the passenger segment, which due to the health measures implemented that ended the cruise season early, closed 10% lower than expected…. while vehicle carriers and LNG, … saw PC/UMS tonnage around 21% and 15% below projection”.
The Panama Canal also introduced a number of relief measures to mitigate the pandemic’s economic uncertainty, including the suspension of advance payments for transit reservation fees and other changes to the waterway’s reservation system. These measures were implemented on May 4, and were extended to December 31, 2020.
One significant improvement in Canal operations took hold towards the end of fiscal 2020. For the first time in twenty months the Panama Canal could boast sufficient depth for vessels requiring 50 foot drafts. This enables the Canal to offer a more competitive alternative route for the ships such as the larger containerships, LNG carriers and bulkers trading between the East coast of the Americas with Asia.
