1. Planned Expansion of the Panama Canal a brief discussion of the potential effects Western Dredging Association, Eastern & Gulf Chapters 2007 Fall Meeting, Oct 9-11, Philadelphia

2. 1 WHAT IS WIDENING THE PANAMA CANAL?  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” “The third set of locks project is a plan to expand the Canal’s capacity composed of three integrated components

3. 2 MANY ROUTES FROM ASIA TO INLAND US 29 EXAMPLE: SOUTHEAST ASIA TO CHICAGO, IL 2 4 1 3 1 2 3  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 of operating costs  Inland connectivity  Location of distribution centers

4. 3 PIERS DATA INDICATE PORT HINTERLANDS

5. 4 21 Net effect of 37% more container ship crossings and 25% more TEUs per crossing is approximately 71% more container capacity through the Panama Canal 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 CONTAINER VESSEL CROSSINGS PER DAYCONTAINERS PER PANAMAX SHIP 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 20012003201X 3,570 2,858 2,450 Panamax Capacity  4,800 TEUs 75% of max. capacity CONTAINERS PER YEAR million TEUs 20012003201X 4,382,000 6,781,000 Reasonable Maximum w/o 3 rd Set of Locks = 11.6MM TEUs/yr 20012003201X 5.5 6.5 8.9 Recent Improvements HISTORICAL DEMAND VS. MAXIMUM CAPACITY 0 2 4 6 8 10 4.9

6. 5  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 SIGNIFICANT PRE-WIDENING EXPANSION

7. 6 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. 7 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. 8  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 WIDENING WILL UTILIZE EXISTING OPPORTUNITIES

10. 9  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 ABILITY TO HANDLE THE ‘LARGEST’ SHIPS

11. 10 PANAMA CANAL RATE INCREASE 19 REDUCTION IN SHIPPING COSTS... AND RATES?  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

12. 11 PANAMA CANAL RATE INCREASE 19 $400 WILL GET YOU ONLY SO FAR...  $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

13. 12 ILLUSTRATIVE EXAMPLE OF PORT GATEWAY SHIFT 1b Currently, All Water service from (North & Southeast) Asia is primarily for delivery to locations near East and Gulf Coast port gateways

14. 13 MODEST REDUCTION FOR ALL WATER SERVICES 1b Currently, All Water service from (North & Southeast) Asia is primarily for delivery to locations near East and Gulf Coast port gateways With reductions in shipper costs for All Water service, some additional destinations may be served via East and Gulf Coast port gateways

15. 14 PANAMA CANAL RATE INCREASE 19 BY ~2016, THE PANAMA CANAL WILL BE READY  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!