Trends and Developments | Panama Shipping Guide 2024

Publicado originalmente en Chambers and Partners

Disponible solo en inglés

Introduction

In 2023, Panama’s economy lost some of its momentum after general commercial activities and economic sectors showed a positive trend of recovery. However, Panama is still one of the fastest growing economies in the region.

Economic growth for 2023 was based principally on the construction, transport, logistics, mining and tourism sectors. The service sector of the economy, consisting of insurance, finance and legal industries, and flagship registrations, still accounts for approximately 80% of gross domestic product (GDP). Panama’s GDP for 2022 was USD76.5 billion, and GDP per capita was USD17,411. Usually low, Panama’s inflation rose to 2.1%. In the commercial balance, total exports (including re-exports from the Colón Free Zone), were USD24.9 billion, while imports (including the Colón Free Zone) topped USD20.9 billion.

Panama’s main economic engine and revenue creator is the Panama Canal. Nonetheless, climate events such as the “Niño” phenomenon caused 2023 to be one of the driest seasons on record, and less rainfall has brought water levels in the Panama Canal to almost historic lows. In response to this situation, the Panama Canal Authority (ACP) imposed restrictions on the number of vessels transiting through the Canal. Bottlenecks in the entrance of the Canal have caused ship-owners to carry less cargo and to opt for longer and more expensive alternative routes. As a result, it is expected that Canal revenues will decrease, despite a hike on toll tariffs, and with less governmental spending in return.

As of September 2023, the Panama Canal’s transit numbers were down slightly, to 14,080 ocean-going vessels; while the ACP received USD3,348 billion in tolls, despite showing a decrease in tonnage to 511,136,710 PC/UMS tons. When analysing 2023 results by segments, Neopanamax box ship transits increased to 1,751, representing 48.3% of total container ships; while Panamax ships decreased to 1,036 (by 5%) compared to 2022, where the ACP registered 1,674 transits of Neopanamax box ships and 1,175 Panamax container vessels. These numbers clearly show a growing interest in large container vessels transiting through the new third set of locks.

Despite the challenges of the Panama Canal and the negative economic impact caused by civil unrest owing to the mining protests, Panama was expected to grow up to 5% in 2023, which is still above the medium average of the entire region.

On a positive note, Panama was removed from the Financial Action Task Force’s (FATF) “grey list”, having been inserted therein since 2019. Exiting the list will provide a boost in international investments to the country, as well as ease the relationship between Panamanian banks and international institutions. At the same time, the removal is expected to be a first step towards the removal of Panama from other lists such as the European Union’s (EU) grey list. The total assets of Panama’s banking centre amounted to USD148.8 billion in relation to Panamanian banks, and to USD26.72 billion in relation to international banks.

In the port sector, global trade slowdown and neighbouring competition affected Panama’s port activity in 2023. Volumes for port containers fell 1.2%, to 8.5 million TEU. The terminals that moved the most containers in 2022 were Manzanillo International Terminal-Panama (MIT), exceeding 2.7 million TEU, followed by Balboa with 2 to 18 million TEU and Colon Container Terminal (CCT) with 1.44 million TEU. CCT posted the best growth for a third consecutive year, with 37.1%; while MIT, Balboa, PSA Panama and Cristobal showed a decrease of 2.5%, 6.6%, 4.7% and 12.8% respectively. This tendency maintained to autumn 2023, with volumes decreasing by 4.3% to 6.14 million TEU from January to September, compared to 6.42 million TEU the year before.

Present Trends and Developments

The Panama Ship Registry

The Panama Maritime Authority (PMA) has mainly focused its administration on growing the Panama Ship Registry. From July 2019 to the end of 2023, the PMA reported adding 33 million gross registry tons, which comprises a growing rate of up to 2.9% according to data from Clarksons’ World Fleet Monitor.

Panama is currently the largest naval registry in relation to number of ships. As of the end of 2023, the Panama Ship Registry had added more than 5.5 million gross tons according to IHS Markit, and the fleet grew to 8,540 vessels, making it the largest registry by number of vessels. This is up from its position in mid-2023 of over 8,200 ships. The PMA highlighted that the Registry had a net increase of 83 ships for all of 2023, which represented a total of 7.2 million gross tons.

However, in mid-2023 the Liberian flag surpassed Panama in total gross tonnage. Based on IHS Markit reports, Liberia reached 252 million gross tons as of the end of July, while Clarksons Research reported Liberia ahead by 1% in mid-2023. As of the year’s end, IHS Markit data showed the Panamanian flag as having 8,540 vessels and a total of 251.1 million gross tons. Currently, Panama and Liberia each have a 16% market share of the world’s naval fleet. The PMA have noted that they achieved a 29% retention rate in 2023, which represents an advance from their average retention rate of 28% since taking leadership of registry administration in 2019.

The ship registries of Panama and Liberia remain in the leadership position of the industry, well ahead of other flags, and even as Panama continues to purge its registry in order to ensure compliance with ship security as provided by international ship conventions.

Having the largest fleet in terms of number of ships, Panama has faced challenges with aging vessels, which has also caused an increase in the detention ratio following port state control (PSC) inspections for said vessels. Nevertheless, the ACP has highlighted the success of its efforts, reporting that 56.7% of ships entering the flag in 2023 were less than 15 years old and had an average age of four years. In 2023, newbuilds totalled 339 ships and represented a combined total of 8.3 million gross registry tons.

The ACP’s ongoing efforts to improve the quality of the fleet, and to ensure compliance, is reflected in the fact that in 2023 the administration removed 161 vessels (representing nearly 1.3 million gross tons) from the registry. Vessels removed from the registry were around 17 years old. Partly as a result of these measures, the US Coast Guard recognised the Panama Ship Registry as eligible for the Qualship 21 Programme, which has been in existence since 1 January 2022. The Programme was created by the US Coast Guard and aims to ensure that all vessels comply with specific established requirements, encouraging exemplary vessels that have been inclined towards compliance and good environmental management. As of June 2023, the Qualship 21 Programme comprises 27 states and registries.

A Panamanian elected as IMO General Secretary

The Republic of Panama 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.

Panama’s candidate, Mr Arsenio Domínguez, became the ninth elected Secretary General of the IMO, with an initial four-year term beginning on 1 January 2024. Mr Domínguez (who is a naval architect) thus became the first Panamanian and Latin American to be elected to the position of IMO Secretary General. He succeeds South Korea’s Kitack Lim, who served in such role for eight years.

The next Secretary General will need to take on several challenges at a critical time for the maritime industry, as it strives to meet the 2030, 2040 and 2050 targets for greenhouse gas (GHG) emissions.

Mr Domínguez’s professional background and dedication to the IMO is well known. He sees it as an “opportunity to capitalise” for the greater good for all, and “will launch a new era for the IMO, where [it is] seen as a source of ingenuity, the creators of productive resolutions and as a rewarding workplace where the best talent thrives”.

The Amador cruise terminal

The Amador cruise terminal, which opened on 20 May 2019 and is located in the Amador archipelago of the Pacific Ocean, is facilitating both transit and home port operations.

The Panama cruise terminal began its 2023–2024 third consecutive cruise season, promising to be busy and profitable, with plenty of opportunities for cruise travelers.

The following cruise liners have reserved scheduled stops at the cruise terminal:

• Norwegian Cruise Line;

• Royal Caribbean International;

• MSC Cruises;

• Phoenix Reisen;

• Princess Cruises;

• Swan Hellenic;

• Viking Cruises;

• Holland America Line; and

• Seabourn.

49 calls have been booked, as well as 31 reservations for transit and 18 for home port activities. Approximately 69,600 passengers will participate in transit operations, while nearly 13,000 passengers are expected to engage in embarkation and disembarkation.

Regulatory Initiatives

Amendments to Law No 57 of 6 August 2008

The PMA, along with the diverse maritime associations of Panama, concluded meetings for the revision of Law No 57 of 6 August 2008 (the “General Merchant Marine Law”), which is the main law for registration of vessels under the Panamanian flag.

In the revision of the General Merchant Marine Law, a total of 188 articles were reviewed, 70 were modified, ten were eliminated and more than 12 new articles were proposed. The project contemplates:

• an aggressive and comprehensive international marketing plan;

• the creation of new departments;

• re-assignment of functions to existing departments or sections; and

• the adoption of new technologies accompanied by the re-engineering and re-orientation of the registry.

In broad terms, the General Merchant Marine Law includes the following novelties:

• a new tax incentives regime;

• the legal security for mortgage creditors of vessels registered in Panama is reinforced – from now on, the cancellation of a vessel will not affect the validity of mortgages previously registered in the PMA’s General Directorate of Public Registry of Vessels;

• the creation of a register of resident agents, allowing the identification of measures that will strengthen due diligence;

• notifications by email instead of the usual edicts;

• issuance of the navigation patent directly on a permanent basis, instead of proceeding with the provisional stage; and

• the elimination of the expiry date of the statutory navigation patent and radio licence.

Maritime Corporations Law

Bill No 575 was presented to the National Assembly, whereby special regulation has been created specifically to modernise the maritime legal system for corporations. When passed, the new bill will boost Panama’s competitiveness in terms of the registration of ships.

With such new law, the registered agent will (among other aspects) be given control of the share register and the power to attest to a company’s actions, simplifying the management process before the public register of shares. Compliance with due diligence obligations are being reinforced as well.

The maritime sector is confident that the new company structure will comprise a flexible and practical option within a complete modern and updated international regulatory framework.

Conclusions and Challenges Ahead

2024 is an election year; therefore, the new elected President will face several challenges. In the maritime sector, a main priority of the Panamanian government will be to approve the revamping of the General Merchant Marine Law and the new Maritime Corporations Law, in order to maintain leadership in the world’s fleets and to increase the country’s competitiveness. A new law restructuring the ACP into a more corporate operative entity, but retaining state control, may be required in order to keep up with private managed registries.

In addition, the issue of the Panama Canal’s decreased transit owing to climate change needs to be addressed. New water reservoirs will need to be created in order to assist the Panama Canal’s locks for the passing of ships when future dry years appear.