Trade agreement could boost Panama-U.S. trade activity

Unlike the free-trade agreements with South Korea and Colombia, the FTA between the U.S. and Panama signed in October did not have to remove any huge obstacles to trade.

Panama’s average duty on imports from the U.S. is 7 percent, while the U.S. government had eliminated most of its tariffs on imports from Panama through the Caribbean Basin Initiative in 1984. Nevertheless, the agreement is expected to provide a significant boost to airborne flows between the two countries.

“We expect sectors like seafood and agriculture to grow,” remarked Fernando Cruz, managing director for Central America and the Caribbean at DHL Global Forwarding (DGF). He projects that cultivation of tilapia and shrimp will increase in Panama as the FTA comes into effect, citing strong growth in tilapia exports from countries like Costa Rica. Shipping from Panama under the FTA will give exporters a strong advantage, Cruz said.

Northbound flows of seafood will be facilitated by the recent completion of a new temperature-controlled facility at Panama’s Tocumen International Airport. However, the FTA is not going to shift Panama’s logistics focus northward from its current emphasis on traffic to and from the Andean region and Central America.

DGF’s sister company, DHL Aviation, has been a major driver of that focus with its regional hub at Tocumen, which opened in 2008. The 83,000-square-foot facility can process 5,000 packages in an hour and is equipped with a cooler facility for perishables. It is also the largest hub in Central America, with connections to 49 countries and territories.
The carrier, which recently launched a new flight between Tocumen and its U.S. hub in Cincinnati, has stepped up its lift out of Panama with the replacement of the B727 freighters stationed there with 757F aircraft.

DGF also opened a 17,000-square-foot distribution center near Tocumen this year, which targets fast-moving consumer goods, telecom equipment and pharmaceuticals. Most of this traffic flows from Panama by road or air to feed markets to the south, company representatives explained. Trade with Central America has been on the rise, and Panama increasingly functions as a distribution hub for the area, Cruz noted. Likewise, DGF is funneling cargo from Tocumen to the Andean region and the Caribbean.

For several multinational customers, the company operates “control towers” in Panama, which monitor traffic flows in the region, track shipments and enable clients to take corrective action if one of their consignments is facing a delay in transit.

“We use Panama as a hub for cargo from Asia,” Cruz said. Traffic that does not have to go on a more direct route is moved through Panama for distribution in Latin America.

Developing trade links with Asia is something Panamanian authorities have long desired. They have even held talks with Asian carriers, and a year ago, Japan’s All Nippon Airways was rumored to be close to announcing flights linking Panama with Tokyo. Nothing has materialized so far, however.

On the maritime side, operators expect a sharp increase in Asian traffic when the expansion of the Panama Canal is completed in 2014. Cruz reckons this will spawn a surge in intermodal traffic, something that Panama is equipped to handle. “Intermodal is one of the many advantages that Panama has,” he said. “The rail system can move half a million TEUs from the Pacific to the Atlantic. You can also truck to the Central American region.”

Panama’s location and the traffic coming through the canal have prompted comparisons to Dubai and its role as a multimodal hub between Asia and Europe. Ram Menen, senior vice president of Emirates, sees new hubs emerging that can take advantage of flows in different modes of transportation.

“There will be a lot of structural changes in globalization of manufacturing, resulting in changes in traffic lanes,” Menen predicted. “This will be key to the creation of new hubs. As the science of continuous replenishment develops, there will be several sea-air hubs emerging in the future in various parts of the world.”

DGF, for instance, is moving sea-air traffic through Panama for a number of customers. In terms of cost and transit times, this approach makes sense for markets like Paraguay, Argentina and Uruguay, whereas a market like Chile is better served with direct sailings, Cruz said.

Are these hub ambitions putting Panama on a collision course with Miami, creating competition for freight? Cruz does not think so, arguing that the two markets are complementary. “Panama is more for Asia-Pacific traffic, and Miami is more for U.S. and European business,” he said.

With Panama’s momentum set to continue, he sees a need for more capacity and infrastructure expansion. In terms of lift, it is the Andean region that needs more capacity, he said. On the ground, the cargo facilities at Tocumen are adequate to handle current volumes, but he warned that they will require expansion soon.

  Like This Post
Current Issue Magazine Cover
Sign Up Email List