Planned Expansion of the Panama Canal

1. Planned Expansion of the Panama Canal a brief discussion of the potential effects Western Dredging Association, Eastern & Gulf Chapters2007 Fall Meeting, Oct 9-11, Philadelphia

2. WHAT IS WIDENING THE PANAMA CANAL? “The third set of locks project is a plan to expand the Canal’s capacity composed of three integrated components • Construction of two lock facilities • One on the Atlantic side {Gatun}, • One on the Pacific side {Miraflores}, • Each with three chambers and three water reutilization basins • Excavation of new access channels to the new locks, and • Widening existing navigational channels, and • Deepening of the navigation channels along with • The elevation of Gatun Lake’s maximum operating level”

3. EXAMPLE: SOUTHEAST ASIA TO CHICAGO, IL 2 2 4 1 1 3 3 MANY ROUTES FROM ASIA TO INLAND US • Alternate, competitive routes • Various ocean services • Western ports or via canals • Combined with inland transportation connections • Choices made based on . . . • Timeliness • Rates, which are a function ofoperating costs • Inland connectivity • Location of distribution centers 29

4. Regions colored with the predominant Port that directly supplies > 25% of the region’s Asian TEUs Sea/Tac NY/NJ CHI Oakland Norfolk MEM ATL Los Angeles DFW Charleston Savannah Houston Miami + 1b PIERS DATA INDICATE PORT HINTERLANDS

5. Panamax Capacity  4,800 TEUs 3,570 2,858 2,450 75% of max. capacity 2001 2003 201X HISTORICAL DEMAND VS. MAXIMUM CAPACITY 21 CONTAINER VESSEL CROSSINGS PER DAY CONTAINERS PER PANAMAX SHIP 10 • Overall Canal crossings are expected to increase from 34 to 41 per day (21% increase) • Higher-value container crossings are expected to increase by 37% to approximately 9 per day • More TEUs (+25%) on the same number of closer-to Panamax vessels • 75% of the ~4,800 TEU limit (3,570 TEUs) is a reasonable maximum 8.9 8 6.5 6 5.5 4.9 4 2 0 2001 2003 201X CONTAINERS PER YEAR Net effect of 37% more container ship crossings and 25% more TEUs per crossing is approximately 71% more container capacity through the Panama Canal Reasonable Maximum w/o 3rd Set of Locks = 11.6MM TEUs/yr million TEUs 6,781,000 4,382,000 Recent Improvements 2001 2003 201X

6. SIGNIFICANT PRE-WIDENING EXPANSION • ACP is responding to market • Spurred by 2002 “lockout” • Re-pricing of high value freight • Guaranteed crossing “slots” • Building infrastructure to increase capacity of existing locks • New towing locomotives • Updated lock hydraulics • Gaillard Cut channel widening • On-line reservations system • Improved lighting

7. OBJECTIVES OF WIDENING • Achieve long-term sustainability and growth for the Canal’s contributions to the National Treasury; • Maintain the Canal’s competitiveness, ensuring continued beneficial impacts on the economy and industries of Panama; • Enable the Canal to capture growing tonnage demand with appropriate levels of service for each market segment; • Make the Canal more productive, safe and efficient.

8. CAPACITY TO SERVE A DIVERSE MARKET • New capacity utilized • For highest-value freight • Other cargo too • Higher value freight has “pushed out” bulk cargo • Coal and LNG projects are waiting • New port developments • Balboa, Cristobal, Colon • Callao, Barranquilla, Aguadulce, Cartagena

9. WIDENING WILL UTILIZE EXISTING OPPORTUNITIES • 3rd Channel will follow historical excavation effort • 1939 dredging by United States • Alongside both Gatun and Miraflores • Freshwater will be re-used • Water Saving Basins alongside each lock • Proven technology

10. ABILITY TO HANDLE THE ‘LARGEST’ SHIPS • Current “Panamax” • 294m LOA • 12m Draft (from 11.5m) • 32m Beam • 4,500 TEUs max • Envisioned New Capacity • 366m LOA • 15m Draft (≈ 50 ft) • 49m Beam • 12,000 TEUs max • Panama Canal will not be the constraint to Asian => US shipping services • Hence new projects at major ports (e.g., Hampton Roads, NY/NJ) to keep up • Savannah and Charleston deepening as well

11. REDUCTION IN SHIPPING COSTS . . . AND RATES? PANAMA CANAL RATE INCREASE • Ocean Shipping Costs • Actual rates fluctuate • Fully-allocated estimate of North Asia => USEC$2,000 ~ $2,200/FEU • Based Upon • Risk-adjusted return • Ship capital cost • Fuel, Crew, Tolls • Excludes port terminal and inland transportation costs • Larger ships will reduce costs per TEU • Approx. 20% reduction if size increases from 4,500 TEU to 12,000 TEU capacity • Your mileage may vary 19

12. $400 WILL GET YOU ONLY SO FAR . . . PANAMA CANAL RATE INCREASE • $300~$400 reduction in total costs via East/Gulf Coast • Costs to West Coast ports are unaffected • So Least Cost Market Area moves ≈100 miles west/north • Ignores speed, service • West Coast port service to mini-landbridge intermodal has proven to very desirable • Largest growth will continue to be in the high population markets along coasts • Mid-East markets (Columbus, Nashville) will continue to be served via West Coast 19

13. CMH MEM ATL DFW JCK PIT CLT ILLUSTRATIVE EXAMPLE OF PORT GATEWAY SHIFT Currently, All Water service from (North & Southeast) Asia is primarily for delivery to locations near East and Gulf Coast port gateways 1b

14. CMH JCK MEM PIT ATL CLT DFW MODEST REDUCTION FOR ALL WATER SERVICES With reductions in shipper costs for All Water service, some additional destinations may be served via East and Gulf Coast port gateways Currently, All Water service from (North & Southeast) Asia is primarily for delivery to locations near East and Gulf Coast port gateways 1b

15. BY ~2016, THE PANAMA CANAL WILL BE READY PANAMA CANAL RATE INCREASE • 50’ channels to allow the largest ships through • But will the East & Gulf Coast ports be able to receive them? Thank you for your time & attention! 19