Expansion of the Panama Canal: Potential Impact

Rodolfo Sabonge Vicepresident, Market Research and Analysis Panama Canal Authority March 2011

1855 – Construction of the Transisthmian Railroad across Panama was a Game Changer

California

CONSTRUCTION OF THE PANAMA CANAL WAS A GAME CHANGER FOR WORLD TRADE

CONSTRUCTION OF THE PANAMA CANAL WAS A GAME CHANGER FOR WORLD TRADE

1915 - 2010 Total Number of Transits: 1,000,972 Amount of Cargo: 8,587,711,605 LT

35,000

350

30,000

Average PC/UMS Tonnage for Commercial Transits

300.8
300

25,000

250

20,000

4,832

9,931

18,940

23,889
14,230

200

15,000

150

10,000

100

5,000

50

Transits

0 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

0

Fiscal Year

PCUMS Tonnage in millions

FY 1955

FY 1975

FY 1995

FY 2010

The Panama Canal - 2011

The Panama Canal - 2014

GAME CHANGER POTENTIAL

Existing Locks Max Vessel size:

4,400 TEU
33.5 m (110’)

32.3 m (106’) 12.4 m (39.5’) 55 m (180’)

12.8 m (42’) 49 m (160’)

18.3 m (60’) 15.2 m (50’)

New Locks Max Vessel size:

12,600 – 14,500 TEU

Container Fleet Capacity and Vessel Size Composition
2000 (4.79 Million TEU)
40.4% Total P.Pmax

2010 (13.78 Million TEU)
3.2%

2014 (16.8 Million TEU)

15% P.Pmax 85% Pmax and Below 37.2% 59.6% Pmax and Below

48.1% Total P.Pmax

12.5% 51.9% 35.6% Pmax and Below

0-4,000+ teu

4,000-6,000+ teu

0-5,000 teu

5-10,000 teu

10,000+ teu

0-5,000 teu

5-10,000 teu

10,000+ teu

371 Panamax vessels 134 Post Panamax vessels

949 Panamax vessels 775 Post Panamax vessels

956 Panamax vessels 804 Post Panamax vessels

Source: Clarkson’s Research Studies 2011

Economies of scale derived from the use of larger container carriers through the Panama Canal
Estimated Service Cost for a Full Container vessel from Asia to East Coast United States (one way) Vessel 4,500 TEU 5,000 TEU 8,000 TEU 12,000 TEU Fuel $1,179,129.35 $1,289,807.96 $2,002,349.53 $2,400,395.39 Charter $443,432.06 $491,697.06 $840,310.71 $1,053,378.23 Ports $86,005.24 $92,161.30 $129,097.65 $178,346.12 Canal $412,450.00 $449,930.00 $696,410.00 $1,016,650.00 Cargo Handling $1,513,446.35 $1,681,607.06 $2,690,571.30 $4,035,856.95 Service Cost $3,634,463.01 $4,005,203.37 $6,358,739.19 $8,684,626.69

Estimated Unit Cost per TEU for a Full Container vessel from Asia to East Coast United States (one way) Vessel 4,500 TEU 5,000 TEU 8,000 TEU 12,000 TEU Fuel $278.75 $274.43 $266.27 $212.80 Charter $104.83 $104.62 $111.74 $93.38 Ports $20.33 $19.61 $17.17 $15.81 Canal $97.51 $95.73 $92.61 $90.13 Cargo Handling Cost per TEU $357.79 $357.79 $357.79 $357.79 $859.21 $852.17 $845.58 $769.91

Note: Utilization - 87% full and 7% empty. Source: ACP Route Competitive Analysis Model, February 2011

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Impact of Expansion on Container Services
(Lines Perspective)

The expansion will extend the Canal’s area of influence

Liner Services Through The Panama Canal
Vancouver Seattle Oakland Tokyo Qingdao PyongtaekYokoham Busan a Shanghai Taipe Ningbo Yantian i Hong Kong Kaohsiung Chiwan New York Norfolk Los Angeles Charleston Ensenad Mobile Savannah Jacksonvill a Houston e Miami Manzanillo Lázaro Kingston San Juan Cardenas P.PR Pto. Quetzal P. Cabello Caucedo Cartagena Cristobal Manzanillo Port of Spain Balboa Manta Guayaqu il Papeete Calla o Ilo Iquique Mejillones Antofagast a San Antonio Trade Route Asia - USEC Pendulum WCSA - Europe Asia - Caribbean WCSA - Caribbean WCSA - USEC Oceania - USEC – Europe USWC - Europe USWC - ECSA Number of Number of Yearly Services Capacity Vessels 13 3,008,960 120 3 8 1 1 3 2 2 1 747,626 1,097,730 239,232 97,537 378,975 209,276 283,155 100,010 41 56 11 3 18 16 14 5 Average Vessel Size 4,440 4,784 2,900 4,588 2,405 2,423 2,654 3,255 1,918 Hamburg Rotterdam Antwerp Dunkirk Le Bilbao La Spezia Marin Havre Naples Gioia Valencia Tauro Tangier Tilbury Dubai

Lautoka Noumea

Sidney Melbourne Tauranga Auckland Napier Timaru Port Chalmers

Source: Compair Data, January 2011

Port Development in Panama
1996: 235K TEUs 2010: 5.6M TEUs 2015: 8.4M TEUs(P)

Panama Ports Company – Cristobal

Colon Container Terminal

Manzanillo International Terminal (MIT)

Panama Ports Company Balboa

Source. The Economist

170 160 150 140 130 120 110 100 90 80

YoY change per region (2008 = 100)

2008 N.America

2009

2010

2011 S.Europe

2012 Far East

2013

2014

2015 S.America

N.Europe

Carib/C.America

NETWORK ECONOMIES
LONG DISTANCE & HIGH DENSITY : LARGE VEHICLE SHORT DISTANCE & LOW DENSITY: SMALL VEHICLE N C W N S C E S

NETWORK ECONOMIES
LONG DISTANCE & HIGH DENSITY : LARGE VEHICLE SHORT DISTANCE & LOW DENSITY: SMALL VEHICLE N C W C S E N

S 21

Principal Ports close to Panama
Ports Distance Nautical Miles Buenaventura, Colombia 393 Santo Tomás, Guatemala 824 Puerto Quetzal, Guatemala 889 Puerto Barrios, Guatemala 824 Acajutla, El Salvador 830 Belize 798 Caldera, Costa Rica 465 Puerto Limón, Costa Rica 192 Corinto, Nicaragua 681 Puerto Cortés, Honduras 747 Puerto de Castilla; Honduras 711 Guayaquil, Ecuador 837 Kingston, Jamaica 555 Caucedo, República Dominicana 800 Cartagena, Colombia 276 Santa Marta, Colombia 360 Cabello, Venezuela 791 Time Days 0.9 1.8 1.9 1.8 1.8 1.7 1.0 0.4 1.5 1.6 1.6 1.8 1.2 1.8 0.6 0.8 1.7

Distance from Panama to Shanghai: 8,571, time: 18.7 days
Source: Fairplay Distance Tables

Short Sea Shipping Network

EAST-WEST POST-PANAMAX MOVEMENT
MANZANILLO LAZARO CARDENAS ACAPULCO SALINACRUZ SAN JOSE PUERTO QUETZAL ACAJUTLA LA LIBERTAD CORINTO PUERTO SANDINO PUNTARENAS CALDERA GOLFITO PUERTO ARMUELLES BALBOA BUENAVENTURA TUMACO ESMERALDAS GUAYAQUIL PAITA CALLAO ANTOFAGASTA VENTANAS VALPARAISO SAN ANTONIO TALCAHUANO

CONNECTING PORTS

TAMPICO VERACRUZ COATZACUALCOS BELICE CITY PUERTO CORTES PUERTO CASTILLA PUERTO CABEZAS EL BLUFF PUERTO LIMON CHIRIQUI BRANDE CRISTOBAL-MIT-EVERGREEN CARTAGENA BARRANQUILLA PUERTO BOLIVAR PUERTO CABELLO LA GUAIRA SUAP / PCEM RECIFE

Estimated Total Maritime Costs for Drybulker from the US East Coast to China
Panamax - 80,000 DWT (75% of utilization) Mini Cape Size - 120,000 DWT (96% of utilization) Savings

Economies of scale derived from the use of larger dry bulk carriers through the Panama Canal
$659,326 $608,136 $248,265 $189,983 $402,559 $844,139 $758,233 $319,662 $71,397 $233,986 $44,004 $837,013 $184,813 $150,097 $434,454 $884,766

Vessel

Fuel

Charter costs

Ports

Canal

Cargo Handling

Total

$2,108,268 $2,993,034

Estimated Maritime Unit Costs for Drybulker from the US East Coast to China ($/Ton)
Vessel Panamax - 80,000 DWT (75% of utilization) Mini Cape Size - 120,000 DWT (96% of utilization) Savings Fuel $10.99 $7.34 -$3.65 Charter costs $10.14 $6.59 -$3.54 Ports $4.14 $2.78 -$1.36 Canal $3.17 $2.03 -$1.13 Cargo Handling $6.71 $7.28 $0.57 Total $35.14 $26.03 -$9.11

Note: Note: Route of coal from Baltimore to Xingang, China. Does not include cost of repositioning the vessel in ballast. Source: Based on information from Drewry Consultants, Novix Competitive Model and other sources.

The Impact of Canal Expansion on Dry Bulks
1. The USG-Asia grain trade will take advantage of expansion, but probably only to vessels of under 100,000 dwt. Likely to benefit Canal routes to remain lower cost than the WCUS gateway. 2. Potential for increased trade in coal and iron ore to China from Colombia and Venezuela.

Economies of scale derived from the use of larger tankers through the Panama Canal
Estimated Total Maritime Costs for Tanker from Ecuador to US Gulf ($/Ton) Charter Cost Cargo Handling $67,608.79

Vessel Products - LR1/Panamax - 70000 Dwt Crude - Suezmax - 140000 Dwt

Fuel

Ports

Canal

Total $595,069.12

$109,989.10 $138,582.01 $117,201.51 $161,687.71

$194,905.34 $231,763.98 $203,431.31 $303,580.40 $139,161.42 $1,072,842.45

Estimated Maritime Unit Costs for Tanker from Ecuador to US Gulf ($/Ton) Charter Cost $2.31 $1.88 Cargo Handling $1.13 $1.13

Vessel Products - LR1/Panamax - 70000 Dwt Crude - Suezmax - 140000 Dwt

Fuel $1.83 $1.58

Ports $1.95 $1.65

Canal $2.69 $2.46

Total $9.92 $8.69

The Impact of Canal Expansion on Liquid Bulks
1. Canal expansion will make Ecuador – USG crude shipments more competitive vs alternative sources (e.g., ex Nigeria). 2. New trade between Venezuela – China could develop, and trade flows between Asia and USG/ECSA should also increase. 3. The expanded Canal will be the first route choice for LNG trades between Trinidad-Chile and Peru-USG should these develop. The ability of 200,000+ cbm LNG tankers to transit will be crucial.

Panama – Logistic Center of the Americas
Reaching the full potential of its geographical position

Competitiveness will be determined by the most effective and reliable supply chains

Value-Added Components of Panama’s Transportation and Logistics Cluster

Transisthmian Pipeline

Colon Free Zone

Technology and Innovation Center

Fiber Optic Duct

Real Estate

Banking Center

Panama-Pacific Special Economic Zone

Expansion of the Panama Canal: Project Status Report
Rodolfo Sabonge Vicepresident, Market Research and Analysis Panama Canal Authority March 2011

Program Total Executed
0 50

154 62.8
100 150 200

Million Cubic Meters

Comparison of volumes of dry excavation and dredging required for the existing Canal
Existing locks: 200 Mm3 New locks: 155 Mm3

1886

1909

Comparison of the volume of concrete required the Locks

Existing locks: 3.4 Mm3

New locks: 4.7 Mm3

Summary Schedule of Main Projects with Baseline and Contingency
as of 31 January 2011
%
06
4T 1T

Activity
Locks

2007
2T 3T 4T 1T

2008
2T 3T 4T 1T

2009
2T 3T 4T 1T

2010
2T 3T 4T 1T

2011
2T 3T 4T

2012
1T 2T 3T 4T 1T

2013
2T 3T 4T 1T

2014
2T 3T 4T

Progress

Specifications and Locks Models Design & Build Post-Panamax Locks Pacific Access Channel – Phase 1

100% 8% 100% 100% 94% 23% 64% 42% 69% 4%

Access Channel Dredging

Pacific Access Channel – Phase 2 Pacific Access Channel – Phase 3 Pacific Access Channel – Phase 4 Dredging of the Pacific Entrance Deepening and Widening of Gatun Lake and Deepening of Culebra Cut Dredging of the Atlantic Entrance Increase Operating Level of Gatún Lake Expanded Canal Begins Operations

Expansion Program Progress

20%
Bidding and Contracting Baseline Execution Baseline

Specifications and Design Baseline*

Contingency against baseline

Beginning of operations

* Baseline from December 31, 2006 including contingency.

Dredging the Northern Entrance to the Pacific Access Channel Jan De Nul Dredging Gatun Lake’s Northern Reaches Pacific Access Channel - 4
BUDGET Dredging International BUDGET ICA-FCC-MECO BUDGET

BUDGET

$ 56,527,400 $ 54,550,647 $ 63,600,000 $ 39,983,822.82 $ 302,374,000 $ 267,798,795.99 $ 105,821,000 $ 89,617,317 $ 3,481,0000,000 $ 3,221,631,384 $ 68,067,623 $ 36,659,852.28 $ 181,096,000 $ 177,500,676.78 $ 48,459,296 $ 25,489,200.30 $ 61,208,966 $ 41,094,000 75% 100%

-3%

- 37%

- 11%

Atlantic Entrance Dredging

JAN DE NUL, NV BUDGET

- 15%

Locks

GUPCSA BUDGET

- 7%

Pacific Access Channel- 3

Constructora MECO, S.A. BUDGET

- 46%

Pacific Entrance Dredging

Dredging International BUDGET

- 2%

Pacific Access Channel - 2

CILSA - MINERA MARÍA BUDGET

- 47%

Pacific Access Channel - 1

Constructora Urbana S.A.
25% 50%

- 33%

Item Explosives – Gel Explosives – Ammonium Nitrogen Concrete Cement for Concrete Pozzuolana for Concrete Reinforcement steel Structural steel for gates Structural steel for valves

Amount 1,506 Tons 3,600 Tons 4.9 M m3 1.12 M Tons 436,000 Tons 279, 000 Tons 47,200 Tons 20,000 Tons

17.9 M m3

Atlantic Ocean
Post-Panamax Locks Atlantic Side Increasing Gatun Lake’s Maximum Operational Level Deepening and Widening of the Atlantic Entrance Post-Panamax Locks – Pacific Side

26.7 m

27.1 m

Deepening and Widening of Gatun Lake’s and Gaillard Cut’s Navigational Channels

8.7 M m3
Access Channel for Post-Panamax Locks - Pacific Side

49 M m3

Deepening and Widening of the Pacific Entrance

Pacific Ocean

Upper chamber area Middle chamber area

Lock head 2 ▼ Trifurcation 3

Lock head 2

Concrete Plant – 540 m3 per hour

Primary crushers in operation

10,000 tons of Rebar

Galley for reinforcing steel storage and bending – 1.26 hectares

Power Generators - 20 MW

Compressors

Concrete Test Block - No. 2

Infraestructure for the delivery of basalt at the Cartagena North tie-up station in Culebra Cut

Infrastructure for the receipt of basalt on the bank of Gatun Lake under the Locks Project on the Atlantic side

October 2009

June 2010

January 2011

Lock head 1 Trifurcation 1 ▼ ▼ Crossunder 1

Trifurcation 2

▼ Crossunder 2 ▼

Lock head 2

Galley for reinforcing steel storage and bending – 1.2 hectares

With only 80 kilometers separating the Atlantic and Pacific Oceans in Panama, a modern port system that ranks among the most productive, warehousing space, 3PLs, and an expanded Canal, Panama is undoubtedly the best place to consolidate cargo in the Americas.

WHY PANAMA?
• A unique geographic location. • Established strategic and trading history. • The strategic advantage of the Panama Canal. • Enhanced connectivity. • The most active and efficient ports in Latin America. • World logistics platform. • Economic and political stability. • A pro-business government that supports the establishment of multinationals. • U.S. dollar. • 4th lowest import costs in Latin America.

Panama: only port of the world with terminals in two oceans
Rotterdam Hamburg Dunkerque Zeebrugge

Osaka Nagoya Shanghai Kwangyang Qingdao Pusan Tokyo Keelung Shimizu Yantian Yokohama Hong Kong Kobe Colombo Hakata Chabang Kaohsiung

Bremerhaven Tilbury Felixstowe Seattle

Singapore

Thamesport Halifax NJ/NY Boston Wilmington Le Havre Newport News Antwerp Oakland Charleston Baltimore Port Said Los Angeles Miami Savannah . Long Beach New Orleans Everglades Marseilles Colon Kingston Manzanillo (Mx) Veracruz Manzanillo La Spezia Cartagena Puerto Limón Maracaibo La Guaira Balboa Tanjung Priok Guanta Buenaventura Puerto Cabello Manta Doniambo Guayaquil Callao Santos Arica Tahiti Paranagua Iquique Itajai Brisbane Coquimbo Antofagasta Sydney Valparaíso San Antonio Auckland San Vicente Melbourne

Transit the Canal Feeder services

Source: ACP and ComPairData

GAME CHANGERS REQUIRE STRATEGIC PLANNING
Rodolfo Sabonge Vicepresident, Market Research and Analysis Panama Canal Authority