Chambers Shipping Guide - Trends and Developments 2023
Originally published in Chambers and Partners
Introduction
After the initial two years of dealing with a world beset by COVID-19, general commercial activities and economic sectors have shown a positive trend of recovery, despite Panama’s economy having been severely affected by the pandemic.
Greatly influenced by the renowned canal connecting the Atlantic and Pacific Oceans, and by business-friendly regulations, Panama is now considered one of the fastest growing economies in Latin America. The service sector of the economy, consisting of insurance, finance and legal industries and flagship registrations, accounts for approximately 80% of GDP.
Panama’s economy grew at an average rate of 9.8% in 2022. The lifting of COVID-19 restrictions has allowed for expansion, especially in the tourism sector. In the maritime sector, continued initiatives such as the re-establishment of the Balboa Shipyard and other new local projects including at internal ports have enabled the maritime sector to participate in the economic resurgence of the country.
During the 2022 fiscal year, the Panama Canal posted a record net tonnage of 518.17 million PC/UMS tonnes, an increase from the 516.17 million PC/UMS tonnes recorded in 2021. In 2022, approximately 14,132 vessels transited the waterway. Toll revenues grew to USD3.028 billion, compared to USD2.68 billion in 2021. Based on previous agreements with the main users of the Panama Canal, tolls are expected to increase in 2023, thus bringing further revenue to operations.
In the port sector, the Russian-Ukrainian conflict as well as the continued conditions of the COVID-19 pandemic have considerably slowed growth. However, issues have been mitigated by the fact that the Panama Canal plays a key role in the world’s logistical system, as 6% of the world’s commerce makes use of the waterway, with major clients including the United States and China.
Financially, even though the majority of ports in the Latin American region have their numbers in the red, Panama’s numbers are staying positive due to the existing maritime connectivity, and the fact that trans-shipment increased throughout the COVID-19 pandemic as shipping companies elected to maintain their cargo locally when not able to deliver to their final destination.
Present Trends and Developments
The Panama Ship Registry
Panama remains the top place worldwide for the enrolment of vessels, with a merchant fleet of 8,650 ships (representing approximately 245 million gross registered tons (GRT)), as registered with the Panama Ship Registry by the end of December 2022. This represents 16% of the world’s fleet, based on the last report issued by World Fleet Monitor and the Clarksons Research database.
Panama has improved substantially in the retention of its fleet with an increase of 3.4% during 2022. These numbers have been well received when considering factors including a world in crisis, less ship-building in markets (primarily Panamanian), the Russian-Ukranian conflict, and other social and economic aspects that directly affect the market.
The Panamanian Maritime Authority (PMA), has prioritised international compliance and digitalisation, together with improvements in the PKI platform, re-engineering, process modernisations and incentives for the use of new technologies, eco-friendly fuels and vessels showing good behavior.
The PMA has recently been conducting a campaign of deleting vessels which are not up to standard as regards security and seaworthiness levels required by Panamanian law and international conventions.
One example is the policy of immediate removal from the Panama Ship Registry of vessels which the PMA may have reasonable grounds to consider are linked to illegal, unregulated and unreported fishing activities, thus complying with Panama’s commitments under the United Nations Convention on the Law of the Sea (UNCLOS).
A decree was issued in order to enforce the aforementioned actions by the PMA, and basically prohibits:
the registration under the Panamanian flag of any vessel linked to illegal fishing;
ship-to-ship (STS) transfers to or from Panamanian flag vessels (the owners, operators, charterers, captains and crew) with vessels that have had their registrations cancelled by the PMA for being linked to illegal fishing;
the carrying out of trade acts through Panamanian flag vessels, and any other transactions, directly or indirectly, with vessels linked to illegal fishing; and
Panamanian nationals, persons subject to Panamanian jurisdiction and entities incorporated to entities subject to Panamanian jurisdiction from conducting or supporting business with vessels that have had their registrations cancelled by the PMA.
Another example of the strict compliance with international standards is that, in view of a slight increment in detentions of the Paris MoU, Panama has decided that all Panamanian flag vessels transiting or visiting Panamanian ports prior to their arrival to any port or terminal in the Paris MoU area must conduct a flag annual safety inspection (ASI) as soon as they arrive. Non-compliance with these provisions may result in the imposition of sanctions.
Despite the possible consequences of the reduction of the flag registry, all these actions have had a positive impact on the quality of the fleet, which since 2019 has shown an increment of 27.9 million GRT and the addition of 567 ships, based on data presented by IHS Markit.
As part of its technological innovation policy, the PMA has implemented some important administrative investments. These have been reflected in improvements to the PKI system for the enrolment of vessels and the E-Segumar platform (Maritime Security Department) for the issuance of technical certifications for ships, as well as the new platform for the Ship Electronic Registry and Maritime System Processing (REN), a project that should continue during the 2023 fiscal year.
IMO Panamanian candidate for General Secretary
The Republic of Panama first joined the International Maritime Organization (IMO) on 31 December 1958, and was a member of the Council of the IMO in 1979. With the entry into force in 2002 of the 1993 amendments to the Constitutive Agreement of the IMO, Panama has since been re-elected as a Category A member of the Council.
With Mr Kitack Lim beginning the final year of his second term as Secretary General of the IMO, Panama became the first country to officially declare a candidate as his successor. Panama announced that it will support its member and current director of the Marine Environment Division, Mr Arsenio Domínguez, in becoming the ninth elected Secretary General of the IMO, with the term beginning on 1 January 2024. Mr Domínguez, who is a naval architect, will become the first Panamanian and Latin American candidate for the position of IMO Secretary General.
The next Secretary General will need to take on several challenges at a critical time for the maritime industry. Confronting environmental issues and the increasing pressures for the industry to accelerate its transition to alternative fuels is a priority for the coming decades. Several organisations have criticised the IMO for being too slow in adopting the necessary changes for leading the industry forward.
The main slogans in Mr Domínguez’s campaign for the leadership position include “taking the lead, for a united and better future”, as well as to serve the IMO by “putting people and planet first.”
As stated, Mr Domínguez is currently the director of the Marine Environment Division, and a member of the Senior Management Committee of the IMO (2017). He was first appointed in 2004 as the alternate representative of Panama to the IMO, and in 2014 was appointed as ambassador of Panama to the IMO.
The Amador cruise terminal
The Amador cruise terminal, located in the Amador archipelago of the Pacific Ocean, was finally completed in 2022 and is now fully operational.
The investment of approximately USD165 million is boosting the country’s tourism sector and assisting the cruise industry in the region. The new facilities allow the simultaneous docking of two cruise ships with a capacity of up to 5,000 passengers, and may receive vessels of up to 360 metres in length.
Demand has proven to be quite strong. There are 52 reservations for the cruise terminal, requested by the most important cruise lines; 22 of these reservations are considered “home port” and 30 are considered transit or “port of call”. This number of reservations represents an approximate volume of 75,233 passengers and 40,529 crew members, with cruise ships that vary in size between 5,800 and 300 passengers and crew members, respectively.
Regulatory Initiatives
Overhaul of Law No 57 of 6 August 2008
Panama is a state-managed open registry. The PMA, as part of the Panamanian government, operates the registry of vessels, and offers official assistance to its clients in terms of legal security and diplomatic and judicial support. This has provided a sense of trust and stability to ship-owners and mortgagees. However, it also creates challenges as regards adaptability and decision-making.
Law No 57 of 6 August 2008 (the General Merchant Marine Law) is the main law for registration of vessels under the Panamanian flag. After 14 years of validity, the PMA has considered a full review necessary in order to modify and modernise the Law, with the intention of maintaining the competitiveness of the Panamanian registry vis-à-vis its major competitors.
For the revision of the Law, the government of Panama has assembled a team consisting of representatives from the public sector and different associations from the private maritime sector, including maritime lawyers, ship-owners, classifiers and members of the Maritime Chamber of Commerce.
In general terms, the update to the Law should include:
discounts;
a review of tariffs;
improving the efficiency of collection of the registry’s income;
improvements to the PKI system, with new methods of payment for each procedure; and
creating new platforms for user interaction, as well as reducing response time for requests, consultations, claims, issuance of certificates and registration of documents.
Challenges Ahead
The year 2023 is expected to be one of the most challenging years to date. The world is still confronted by a continuing pandemic, and additionally the Russian-Ukrainian conflict presents unprecedented obstacles. A global recession is a real possibility for the near future, which would test Panama’s resilience.
A main priority of the Panamanian government is for the registry to conclude revamping Law 57 of 6 August 2008 before the year’s end, in order to maintain competitiveness. This should be followed by continuing its policy of international compliance, as well as keeping up with recent trends in eco-ship initiatives. In November 2021, Panama signed the Declaration of Zero Emissions in the Maritime Industry by 2050, to achieve decarbonisation by that year. As a country declared as carbon negative, Panama has given its support for the creation of the International Maritime Research and Development Board (IMRDB) in order to accelerate the development of new technologies in maritime transport for a cleaner environment.