Reality check among the roses

panama canal

Panama Canal is at the centre of looming major, and potentially costly, changes to wrldwide shipping. (Picture courtesy Panama Canal Authority)

Recently I had to melt the ice of the windscreen to be able to attend a breakfast in Launceston where the State Treasurer spoke on the then-upcoming budget as well as how Tasmania is faring as a whole.

Sitting amongst some people I had met for the first time it was evident that there was a sense of pride and enthusiasm for how our State is progressing. The Treasurer echoed the sentiments of the general consensus of the room – we are in a good place at the moment. Encouragement for export was one of the themes of the presentation on the back of a 33% increase as well as statistics around how capital investment in buildings and machinery are up 11%. All great news for the economy and exciting for the growth of the State – infrastructure spending in the budget and investment by the shipping services domestically servicing Tasmania reflect this as well.

Of course, the warm glow of success can also be a distraction.

Importers are going to have difficulties in the latter half of 2018 – the issue will be space (especially ex-Asia) and this will in-turn put pressure on rates. The forecasts already show July as being at 104% capacity – shippers need to be aware that there are likely to be delays and high costs. Some lines are stating that new capacity will be rolled out, but at time of writing this has not been confirmed.

Fuel prices have impacted shipping and all trade routes have now implemented bunker adjustment factors that will be reviewed regularly – on average this has seen an increase of US$50.00 per 20’ container for export and import cargoes. In 18 months’ time the IMO is enforcing 0.5% sulphur cap regulations on merchant shipping – this will come with a cost of around US$50 billion to the shipping industry – shippers would be wise to start thinking about that in terms of how this cost will be passed on.

The Panama Canal is a little bit narrower than Bass Strait, but over the years they have been widening it to accommodate larger vessels – these are called Neo Panama class vessels (as opposed to Panama class vessels). The Panama class vessels are being scrapped at a fast rate and at some point CEO’s of shipping lines are going to be asking their Australian offices to begin to plan to accept Neo Panama class vessels – unfortunately some of our ports have missed this trend and they are not prepared or able to accommodate such vessel sizes – this will result in infrastructure spend and will likely add to costs.

I favour writing positive view points as much as I can and the growth of our trade tells an excellent story, however every now and again a reality check does not go astray.

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