Making up 18.53% of the country’s GDP at a value of $6.6bn in 2014, transport, storage and communications has historically been a pillar of Panama’s growth. The opening of the Panama Canal in 1914 and the subsequent handover of the passage from the US to local authorities at the end of 1999 has been a catalyst of the country’s economic success. Many activities related to logistics such as transhipments, multi-modal transport, storage, consolidation, deconsolidation and others have also formed a strong sector around cargo movement. According to an analysis in the Strategic Government Plan 2015-19 (Plan Estratégico de Gobierno 2015-19, PEG), the transport sector’s contribution to GDP between 2008 and 2013 shows that 42% comes from the canal, while 31% comes from land cargo and passengers, 15% from air cargo and 10% from maritime transport. The development of value-added activities has driven the country to expand in sectors such as light industry and niche logistics.
On the other hand, strong economic growth has brought about rapid urbanisation, creating a growing need for better transport both inter- and intra-city. Large projects like the Panama City Metro have expanded transportation infrastructure. Nonetheless, the question remains if the rate of transport infrastructure development can keep up with the rate of economic and demographic growth.
The Panama National Centre for Competitiveness together with the Georgia Tech Logistics Innovation and Research Centre are putting together the National Logistics Strategic Plan. The plan emanates from an InterAmerican Development Bank project where conferences and round-tables were hosted with sector participation. One of the most important outcomes is the possible creation of a Logistics Ministry, derived from the current Logistics Cabinet.
Panama’s prime geographical location has allowed it to develop its maritime connectivity. The main activity is the trans-shipment of containers, moving the largest volume in Latin America with almost 7m twenty-foot equivalent units (TEUs) in 2014. After reaching a record number of containers in 2012, 2014 saw year-on-year (y-o-y) growth of 3.2% and further expansion is expected. Panama is home to a number of ports, with terminals on both the Atlantic and Pacific coasts. The country’s main ports include Balboa, Cristobal, PSA Panama International Terminal, Colón Container Terminal (CCT) and Manzanillo International Terminal (MIT). Ports can be publicly or privately owned and operated through concessions. The Panama Maritime Authority (Autoridad Marítima de Panamá, AMP) is the main regulator of maritime activities and also operates the government-owned ports.
Although containers are the main business, bulk and liquid cargo are also present, as well as cruise and passenger transport. The Balboa/Colón complex (including MIT, CCT and Cristobal) has a 7.7m-TEU capacity. Panama Ports Company’s Port of Balboa has the largest container handling capacity, accounting for over 45% of the total market, with MIT in second place with 30%. Other seaports include five in the Bocas del Toro region and three in Chiriquí. The rest of the provinces have another five ports, which combined with the 10 in Panama and nine in Colón, result in 32 total seaports. From this total, 18 are private concessions and 14 are state-operated ports, covering mainly the smaller cargo and passenger ports. The concessions are mostly for 10 years and the state tends to keep a percentage of participation in a special purpose vehicle. However, private companies are granted autonomy for operations. The AMP has worked to optimise its tender policy, and today bids are made through tenders with a pre-qualifying round.
Most of the port’s activity comes from containers from Asia destined for the US, mainly the east coast. This represents 60-70% of the total trans-shipment cargo, while 30-40% is mostly cargo coming from Europe to serve the Central and South America regions. However, recent local and regional efforts are looking to further incentivise cabotage within Panama and short-distance transport within the region. Flor Melina Pitty, head of the department of seaport operations at AMP, told OBG that the authority has participated in two studies to this end. The first is a regional study by the Central American Commission on Maritime Transport focused on optimising, unifying and increasing regional short-distance transport. The second is an in-house study for increasing internal cabotage, aimed at using Panama’s existing maritime infrastructure to increase seaborne movement of containers, bulk cargo and passengers within the country.
In addition to containers, Panama has additional infrastructure in other segments. Liquid cargo is mainly composed of oil and gas derivatives, with two main terminals in the region. Petroamérica Terminal, located on the Pacific entrance of the Panama Canal, has a 1.1m-barrel capacity for oil products. After a brief hiccup in 2011 where the concession ended and AMP had to take control, the 66-tank former APSA terminal in Colón and Balboa is currently under a 20-year concession to Aegean Oil Terminals (Panama). Meanwhile, Petroterminal de Panamá operates terminals on both coasts, as well as a 131-km crude oil pipeline crossing the country. With the canal’s expansion, many companies are looking to Panama as a centre for hydrocarbons storage and trading. Puma Energy and Vopak have plans to build two more terminals in the near future with costs adding up to $180m (see Energy chapter).
One of the most important sources of cargo movement for the country is trans-shipment. Usually cargo arrives in ships from Asia at the Pacific ports of Panama. From there the vessels are unloaded, containers are classified and later taken to the Atlantic side of the country. At that point, other vessels are loaded for destinations such as the US East Coast and Central and South America. “Atlantic and Pacific ports should be directly connected, without forcing transport to go through the capital. This would decrease the time and cost of transporting goods from one coast to another,” José Antonio de Obaldía, managing director of FedEx Central America, told OBG.
Pacific-to-Atlantic trans-shipment represents approximately 60% of movements, while other forms such as Atlantic-to-Pacific and Pacific-to-South Pacific represent the balance. Many new advances have taken place in the past years in the trans-shipment realm, particularly the addition of cargo services, also known as value-added services (see analysis).
Special Economic Zones
Much of Panama’s transport and logistics success is due to the country’s special economic zones (SEZs), with the Colón Free Zone (CFZ) being one of the primary examples. SEZs allow tax-free cargo import and export, as long as the cargo does not stay in Panama. As cargo consolidators, SEZs allow large orders to be placed to manufacturers in Asia, deconsolidate at arrival and reconsolidate to ship to the destination counties.
Panama has also signed a number of free trade agreements (FTAs) that enables companies to export their cargo to multiple countries with lower taxes than a direct shipment. Panama has signed FTAs with 13 countries, the latest ones being Colombia in 2013 and Mexico in 2014. Other countries include the US, Canada, most of the Central American countries, Taiwan, Singapore, Chile and Peru. Additionally, partial scope trade agreements between the Latin American Integration Association, the EU and nations including Israel and Mexico are in force.
In operation for more than 60 years, the CFZ recorded steady growth in activities until 2012, with $30bn worth of commercial activity recorded that year. However, 2013 and 2014 saw an annual decrease of 10% and 12% with total commercial activity at $24bn in 2014. Nevertheless, the value spread between imports and re-exports has been generally up in recent years, reaching 17% in 2014. This shows that value is being added to the cargo in these zones.
A more recent addition to Panama’s SEZs is Panama Pacifico developed by UK-based London and Regional Panama. Since 2007 this 14-ha mixed-use development has offered residential, commercial and industrial space. More than 100 companies are established in the zone providing jobs to almost 5000 workers. Although not all activities are exempt from income tax as in the CFZs, Panama Pacifico has other exemptions and incentives, such as property tax, and availability of special visas for workers and relatives. Additionally, another 14 registered free zones exist in the country, of which 10 are operational.
Also known as cargo services, this realm includes cargo processes between arrival and departure. Initially, Panama started with a straightforward import/re-export model. Value-added services such as repackaging, labelling and bundling have been added to the portfolio of services with great success. With the amount of upcoming competition in the region, experts from the Georgia Tech Logistics Innovation and Research Centre agree that to retain competitiveness, development of these value-added services is key. Maximiliano E Jiménez Arbeláez, general-director of the centre, pointed out two examples. The first is cargo deconsolidation and reconsolidation done in logistics parks such as Panama Pacifico. For example, different products from Asia come in large containers. Upon arrival, cargo is separated and then different products for the same region are consolidated in a single container, thus saving time and space and overall costs. The second example Jiménez mentioned was more specific. “I know of a company that sells cosmetic products from Mexico to Venezuela. Originally the products were fully packaged in Mexico and shipped directly. Today the company does a partial packaging at origin, brings the product to Panama Pacifico where it is fully packaged and transported to the Atlantic coast. From there it is shipped to Venezuela. Going through Panama and utilising local value-added services here meant that the overall logistics chain has seen a 33% time reduction.”
Aviation is a key sector for the country, not only for its direct footprint but also for the indirect impact that connectivity has on the local economy. The segment contributes 2.4% to the country’s GDP. When taking into account indirect contributions such as supply chain and employee spending, the GDP contribution rises to 4.2%, according to a 2015 report by Oxford Economics. The sector provides 13,400 direct jobs and 18,700 additional indirect jobs. The country saw a total of 11.7m passenger movements in 2013 and some 110,000 tonnes of freight.
In addition, the arrival of international companies has been ongoing. Iberia, Condor, Air France-KLM – and most recently Lufthansa – all have routes to Panama, so the country has been able to establish itself as a major hub in the Americas. This is due to a number of factors, the first of which is the country’s geographical location. Panama is a short-haul flight away from most destinations in North and South America. This makes it easy to use Panama as a hub to transfer within cities that otherwise would require less convenient layovers. The establishment of Panama – and especially Tocumen – as a hub is easily noted when looking at statistics. The airport handled 6.3m passengers in the year to September 2014, more than half of which were transit passengers. The number of passengers at the airport rose 10.2% compared to the same period in 2013, with 19 passenger airlines serving it in addition to 17 cargo airlines. Tocumen has direct connections to 63 cities and indirect connections (with one stop) to more than 800 destinations.
Economic expansion within the country has also resulted in an increasing number of Panamanians travelling both domestically and internationally for business and pleasure. Jose A Montero, chief financial officer and vice-president of finance for Copa Airlines, explained to OBG that it is common to see a 2:1 ratio regarding air travel growth versus GDP growth. This ratio would mean that at an average 6% GDP growth rate for 2014, the local passenger airline market should have seen 12% expansion.
In late 2014, Irelandia Aviación y Grupo IAMSA, the owners of the low-cost airlines Viva Aerobus and Viva Colombia, announced its interest in expanding operations in Central and South America by establishing a holding company in Panama City. Enrique Herrera, international affairs and air transport regulation coordinator at the Civil Aeronautic Authority, said that Viva will be based at the Panama Pacifico International Airport, previously known as Howard Air Force Base.
Airport infrastructure in the country includes seven international airports, with the two main ones being Tocumen International Airport and Marcos A Gelabert International Airport (also known as Albrook), both in Panama City. The first one is the hub for Copa Airlines and DHL cargo, while the second is the main domestic airport and hub for Air Panama. With 85% of its total operations based in Tocumen, Copa Airlines has been a major contributor to sector growth. Herrera mentioned that a cargo terminal is set to serve the CFZ. The terminal has been inaugurated, however, it is still not fully operational. He added that in the centre of the country, the Scarlett Martínez Airport, also known as Rio Hato airport, has seen an increasing amount of inbound charter flights from the US and Canada, aimed at tourists arriving directly to beach areas. The Panama Civil Aviation Authority estimates that for passenger travel 67% of the international flights originating in Panama go to Central and South America, while North American-bound flights make up 26%; Europe, 5%; and the Asia and Pacific region, 0.7%.
The land transport subsector comprises the largest portion of the transport sector’s GDP share, representing 31% of the total sector contribution. This segment should see its fair share of improvements in the next five years. With around 6300 km of paved roads, Panama is mainly connected by the Pan-American Highway, which crosses the country from east to west. The highway has four lanes for more than 200 km and an expansion project is under way to add further lanes and a highway interchange at the former Howard military base.
The total value of the expansion and maintenance project amounts to over $856m in the next five years. Added to the Pan-American, the highway connecting Panama City and Colón, the 59-km Colón Expressway, is key as a vast amount of cargo is transported along this route which joins the two oceans. Panama City is interconnected to Tocumen International Airport via the Corredor Sur and to the town of La Chorrera via the La Chorrera Highway.
Panama has seen a significant rise in the number of motor vehicles in recent years, increasing from 464,000 in 2010 to 588,000 in 2013. Forecasts indicate that by 2020 Panama will have close to 1m vehicles on its roads. This rise has presented challenges, especially due to the fact that the majority of vehicles are concentrated around urban areas, mainly Panama City, leading to traffic jams. The main issue emanates from the fact that Panama’s housing costs can be very high (see Real Estate & Construction chapter), with people moving to “sleeper cities” and commuting to work.
To tackle these jams, authorities have put into action an ambitious public transport plan for Panama City, including three metro lines, one of which would cross the canal, as well as general urban transport renovation. The first metro line has been operational since April 2014. With a total of 17 stations and at least six additional ones to come, and a final investment of almost $2bn, the metro’s first line has transported around 200,000 people a day.
The contract for the second 22-km metro line was awarded in May 2015 to a consortium that includes Brazilian conglomerate Odebrecht and Spanish construction firm FCC Construcciones. The total budget is estimated at over $2bn, making up 60% of the overall PEG 2015-19 budget. Studies for the 26-km third metro line with 14 stations have also started. Added to that, a fourth bridge over the Panama Canal has been envisioned for the necessary interconnection. The cost of the third metro line is estimated at $2bn.
One of the world’s most active transport and logistics hubs, Panama has long been the regional leader. However, challenges such as the sector’s correlation with the global economy has brought the need to look into diversifying these activities, mostly by reducing dependence on canal fees and increasing the contribution of value-added services. The investments in ports in Central America and plans to build additional canals in the region have also put pressure on Panama’s logistic sector.
Standing up to the challenge of maintaining leadership in a highly competitive sector will be vital in the coming years. Nonetheless, Panama has the advantage of having started the transport race over a century earlier. If key sector stakeholders such as policymakers and private firms continue presenting a unified front, the future of the transport sector looks promising indeed.
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