Panama’s Logistic sector
Report by Netherlands Embassy in Panama Report by Netherlands Embassy in Panama Report by Netherlands
Investment Opportunities
in Hub of the Americas
2015
Panama’s logistic sector
In 2016 the extended Panama Canal will have made way for larger and more vessels, promoting
economies of scale. That’s great. But how to attract them when maritime activity drops with 2% a
year, shipping companies seek lower costs and competition from Suez Canal and US is high? There
is only one way and Panama is already taking action. To be the most competitive transport route
the country is transforming itself into a maritime and logistics hub of the Americas. And Panama is
not doing it alone. The Inter-American Development Bank (IDB) released a dense blueprint on how
to organize a national logistic system with value added services. Their recommendations are taking
form in everyday life. Panama created a Logistics Cabinet directly under the Presidency and
maritime organizations like the Panama Canal Authority are issuing tenders for logistic
megaprojects. The port of Corozal is in full stream development, as is a Roll-on Roll-off port on the
Pacific entrance of the canal.
In this report, you’ll find an overview of Panama’s logistics developments and ambitions. These are
supported by IDB’s recommendations. We’ll take a closer look at three logistic subsystems in which
the IDB sees great potential. Very concrete projects have been pinpointed. As you’ll get a clear
insight into Panama’s logistics sector, we’ll reflect upon current developments and investment
possibilities open for proposals.
Panama has a GDP of $40.3 billion and a GDP per
capita of $10,838. In 2014 Panama was ranked 48th in
the Global Competitive Index. The credit rating
agency Moody's qualified Panama with a Baa2 rate
and a stable outlook based on its continued economic
growth of 6.5%.
In the Logistics Performance Index
Panama scores an overall 3.2 on a scale
Panama City ranks 1st in “Doing Business in
from 1-5 (lowest score to highest score).
Central America and the Dominican
That said, factors such as corruption and
Republic 2015”, an annual study by the
inefficient government bureaucracy
World Bank. Their ranking is based on the
should be taken into account when doing
average of 3 indicators:
business in Panama.
- starting a business (1st);
- dealing with construction permits (6th);
- registering property (3rd).
Figure 1: Panama in facts
1
1. Recent logistic developments
In 2012 the Ministry of Commerce and Industries (MICI) initiated a Logistics Cabinet to integrate
different programs of governmental agencies into a logistics master program. Their aim was to
elaborate and execute this master program to transform Panama into a logistics and commercial
hub. To coordinate this, the Logistic Cabinet set up a National Logistics Council (NLC) 1.
In 2013 Panama reached out to the IDB for technical assistance. Coordination was needed to
formulate the logistics program. As the IDB had conducted a study in 2012-13 concerning logistical
and commercial improvement in Mesoamerica, action priorities had already been identified.
Following from this analysis, the IDB was able to provide technical cooperation to strengthen - and
structure - the institutional capacity of the logistics sector in Panama. Through workshops public
and private stakeholders came together to integrate plans and reached consensus on strategic
priorities. The IDB provided a special consultant to support this organizational process and
financed these initial activities.
The result was the formulation of a National Logistics Plan; an in-depth blueprint to guide
government action on how Panama can best develop its logistics sector. They focused on the
efficacy and efficiency of the existing legal framework, the logistical processes and overall
infrastructure. The aim of the National Logistics Plan is to improve the performance and integration
of the National Logistics System.
Of equal importance was the need for (1) a body with a leadership role, (2) inter-institutional
cooperation and (3) policy formulated on a national level that stemmed from these public/private
workshops.
In the same year of 2013, the private sector initiated a Logistics Business Council (COEL); a body
that institutionalizes the participation of the private sector in the development and implementation
of government strategies regarding logistics.
2. Panama’s National Logistics System
Panama’s economy is mainly based on its service sector which accounts for 83% of its GDP. 24,3%
of this sector consists of maritime and logistic services. Panama’s main export products (banana,
shrimps, pineapple and fish) are exported by sea. The most important cargo route is interoceanic;
the Panama Canal.
1
For more information on the NLC please go to http://www.gatech.pa/competitiveness/nlc/
2
Figure 2: Overview Panama’s logistics sector
The core policy of the National Logistics System is based on the former Panama’s National Maritime
Strategy (2009), which main objective was to develop and strengthen maritime, logistic and
economic activities in a sustainable manner as to consolidate Panama as the maritime and logistics
platform of the Americas.
Despite the existence of the Colon Free Trade Zone and the Economic Area of Panamá Pacífico, the
logistic infrastructure is still relatively unstructured and slightly segregated from the urban area.
Panama mostly provides assistant services and thus has a lot to gain in the development of value
adding services, which will become evident throughout this rapport. Several organizations have
already showed initiatives to enter this market, generating a risk of oversupply.
While Panama is focusing on modernization, it still has a long way to go. The main challenge is to
not merely correct persisting inefficiencies - delay due to lack of capacity and personnel 2 - , but to
transform the entire system towards an international platform in which all junctions of
international commerce are connected via protected fiscal passages. In other words; move from a
short term to a long term vision.
2
For more information on the NLS inefficiencies, see the IDB report Plan National de Logisitica de Cargas – NPLog
Panama 2014-24, Marelia Martínez Rivas, March 2014, p.79-80.
3
The IDB identified the main factors that challenge the development of the National Logistics
System:
- lack of strong leadership from the government
- a scattered legal framework over various institutions, making it difficult to implement a
comprehensive plan for medium and long term
- a severe deficit in adequate work force
- part of the investment has to come from the private sector
The main short term risk is congestion of the system, as short and long distance transport flows are
not enough separated.
3. Identified: three logistic subsystems
To improve the development of the National Logistics System the IDB focuses on three
logistic subsystems in the National Logistics Plan to turn Panama into a global logistics hub:
Subsystem
Vision
1. Value-Added Logistics Services (VALS)
Hub of Canal conglomerate
Panama is an adding value logistics hub, a leader in innovation
and global connectivity
2. Logistic support for agricultural sector
Panama’s efficient logistics create economies of scale making
Panamanian agricultural products more competitive in
domestic and international market
3. Logistics support for regional trade
Panama is the most competitive and efficient logistics hub in
air, sea and land distribution of the region.
Within each subsystem the National Logistics Plan strategy is to improve Panama’s (1)
infrastructure, (2) services, (3) processes, (4) human recourses and (5) legal framework and
regulation.
Though high aspirations resound, the amount of recommendations for feasibility studies are
significant and signal the transformation still needed. The following paragraphs will introduce
more in-depth possibilities in the areas of the three subsystems.
3. 1 Subsystem: Value-Added Logistics Services Hub of the Canal conglomerate
The National Logistics Plan identifies 8 forms of Value Added Logistics Services that have potential
for Panama, and which actions are crucial for the development of these services.
4
Value-Added Logistics Services:
Segment
Potential
To do
1. Regional distribution and
consumer product
postponement
Significant
- improve cold chain
2. Postponement of consumer
goods
3. Maritime services
4. Distribution of fuels
5. Regional Pharmaceutical
distribution
- simplify customs procedures
- improve land connectivity between nodes
- improve quality of HR
Significant
- improve cold chain
- simplify customs procedures
High comparative
advantage
High potential
Significant potential
- improve land connectivity between nodes
- develop right infrastructure
- promote service quality
- promote custom 24/7
- improve local supply chain
- increase volume and connectivity
- improve cold chain
- simplify customs procedures
- improve land connectivity between nodes
- improve quality of HR
6. Distribution of perishable
goods
Limited potential
7. Bulk distribution
High potential
- develop specialized port infrastructure
Great potential
- improve specialized infrastructure
8. Postponement and
distribution of vehicles and
heavy equipment.
- improve connectivity
- improve land access
- improve port connectivity
- improve security
- improve HR
For the development of these 8 VALS segments it is important to understand Panama’s current
strengths and weaknesses regarding its logistics sector.
Panama’s strengths:
•
expansion of Panama Canal, which will increase traffic and potential demand for VALS
•
existing world level infrastructure; ports and airport, with elevated connectivity
•
low country risk and economies of agglomeration, which attract investment
•
existing qualitative transport services
•
commercial activity in the Colon Free Zone and its value adding services
•
established network between Latin American and North American companies
5
Panama’s weaknesses:
•
fragmented supply of second and third level logistics, limited supply of first level logistics
•
limited existence of world class logistic zones with good port connections
•
saturation of the internal road network and road congestions problems
•
congestion of ports
•
logistic service highly concentrated in supportive services
•
port development is organized under a concession system that makes for complex
regulation and leads to little reaction of interested companies
•
tools to stimulate foreign direct investment are scattered, which generates confusion on
side of investors
•
inefficiencies and fragmentation in foreign trade processes that are not equipped to provide
systematic monitoring
•
shortage of human resources on technical level
What stands out from this analysis is that the groundwork of big infrastructure in Panama is
developed. Priority now is to integrate the Panama Canal, its multiple ports and its airport to
improve efficiency and extend VALS capacity.
For this to happen the National Logistics Plan identified the following actions:
•
work towards an intermodal infrastructure system to optimize cargo flows
•
improve human resources to provide high-level services
•
optimize technical processes
•
streamline regulation
•
provide legal security for investors to attract FDI
•
enhance public-private collaboration
3.2. Subsystem: Logistic support to agricultural sector
The second subsystem in which the IDB sees great potential focusses on the development of the
infrastructure needed to support Panama’s agricultural sector. This will provide opportunities for
economies of scale which will make Panamanian agricultural products more competitive in the
domestic and international market.
Below you will find a dense list of the current strengths and weaknesses as analyzed by the IDB.
Panama’s strengths:
•
concentration of production zones
•
proximity of specialized ports
•
overall good quality of road infrastructure
•
adaptation of Panama’s legal system regarding goods in transit
•
national experience with large-scale buyers
•
renewed focus on exports by Ministry of Commerce and Industry
6
Panama’s weaknesses:
•
existing cold chain secretariat that doesn’t function
•
inefficiencies in transport of national agricultural production
•
lack of continuity of cold chain in transport and storage
•
limited and fragmented logistic infrastructure in Panama City for national distribution
•
congestion of roads
•
oversupply of intermediaries and brokers make it impractical for exporters to export
•
low maturity of export chain
•
small producers are scattered and without central storage facilities
•
lack of cold chain personnel to operate specialized equipment
•
high costs for certification of good export practices
•
lack of training in international market position
•
lack of traceability systems
•
lack of customs training in transfer of goods
•
quotas limit Latin American ships to Panama, making Latin American agricultural exporters
less competitive
•
low volumes and seasonal fluctuations
•
significant differences in shipping prices resulting from demand fluctuations
•
lack of external investors and little investment from private sector
•
high costs for transport over land
•
high cost to cross over the Panama Canal (East-West)
•
vertical integration of shipping and transport companies is increasing freight cost
Room for improvement is plentiful. Overall we see a lack in basic infrastructure and limited
connection between the production chain which causes inefficiencies, high costs and loss in
competitiveness.
Panama’s direct priorities in logistical support for agriculture are the following:
 increase large-scale production through partnership and proper logistics
 connectivity to production centers
 increase regular market data to optimize product marketing
 simplification of external commerce processes
 reduce costs of supplies
Complementary to these priorities, the IDB identified two more focus points, namely:
 necessity for incentive, financing and legal framework
 elaborating plans for further agricultural developments to improve potential of export
products
7
3.3. Subsystem: Logistics support to regional trade
The third subsystem envisions Panama as the most competitive regional logistic hub in air, sea and
land distribution. Whereas the first subsystem concentrates on the zone around the Panama Canal,
this subsystem focusses on integrating all nationwide logistics into a multimodal system to facilitate
commerce regionally. Panama wants to be the entry and exit point of the Americas, adding value to
products and services as a world class distribution hub.
These are confident aspirations. For a country located at the heart of the Americas that has served
for over a hundred years as the only passage between the Atlantic and the Pacific, it might not be
such a wild idea to build on these advantages and to step up its game.
Let’s have a look at the strengths and weaknesses in positioning Panama as logistic hub.
Strengths:
• Colon Free Zone
• it is a regional air and port hub
• transport services and high quality VALS
• consolidated supply of high quality international transportation services that provide
opportunities for this subsystem in Panama
• overall good quality of road infrastructure
• security of goods
Weaknesses:
• many empty returns in road transport
• limited infrastructure at Panama- Costa Rica border
• security problems outside of Panama
• weak logistic structure to support commercial exchange in Central America, especially in
urban distribution areas and for VALS
To achieve a competitive multimodal system the following priorities have arisen:
 development of specific services
 efficient customs, prioritizing movement of goods
 traceability of goods
 private - public cooperation
 infrastructure at the borders
 modernization of technology and equipment for logistics services , standardization of fleets
 business promotion
 multimodal connectivity, door to door
 adequate workforce
 customs union
 logistics observatory
 high quality information systems
8
4. Concrete investment possibilities
The study conducted by the IDB has been so thorough that it allows for the concretization of
investment projects. As the institutional capacity of the logistic sector is accumulating – which we
will discuss in the next chapter - the prospect of those plans to be initiated by the public and private
sector is (already) becoming reality. Below you will find a large overview of these investment
possibilities.
4.1 Infrastructure
I.
Investments in ports, interoceanic (logistics) route, road and rail investments,
Logistics Activity Zone along the Canal to support the value added services.
Investments are specified in the Interoceanic Zone master plan of the Logistics
Cabinet
II.
Road investments on the west bank of the Canal and a 4th canal bridge
III.
Greenfield development of a 3 million container terminal in Corozal
IV.
Project to modernize Tocumen Cargo Centre
V.
Logistic Activity Zone in Paso Canoas (Panama- Costa Rica), Logistic Activity Zone
distribution in urban Panama
VI.
Logistic Activity Zones supporting production in the west of Panama, in the areas of
David, Chiriquí, Torti, Metitis
VII.
Consolidation of the Pacific Logistic Corridor (CPL), most likely a railroad, and the
border crossing of Paso Canoas (Panama-Costa Rica)
VIII.
Consolidation of logistic corridor (highway) between David-Guabito, and the border
crossing of Guabito with Costa Rica
IX.
Cargo Traffic Management plans in Panama and Colon
X.
Road network to improve large scale agricultural production and transport in the
areas of Darien, David, Azuero, Chepo and Santa Fe
XI.
Actions derived from the Airport Development Strategy of Panama 2010-14 3
XII.
Road maintenance system
4.2 Logistic Services
XIII.
Incentives to develop value added services to support all subsystems
XIV.
Freight exchange and systems to support the logistics of agriculture export
XV.
Other ICT to support the business sector
XVI.
Strategic plan to promote the value added services
3
4.3 Processes
XVII.
System modernization of customs and computerization of Ventanilla Única de
Comercio Exterior (VUCE) ; an online platform to speed up export transactions 4
For more information on the Airport Development Strategy of Panama 2010-14, please go to
http://www.aeronautica.gob.pa/images/stories/plan%20estrategico%20de%20gobierno%202010-2014.pdf
4
VUCE is a platform that allows its users to process the certificates required to export or import quickly and safely,
and make payments online and track transactions in real time. For more information, please go to
9
XVIII.
XIX.
XX.
Process modernization of COMEX and integration of national systems
Traceability systems for goods in Pacific Logistic Corridor (CPL)
Training of operating staff of COMEX
4.4 Additional
XXI.
Legal Framework Cargo Logistics
XXII.
Formulation of HR Plan
XXIII.
Regulation Act Port and Customs
XXIV.
Establishment of Logistics Secretariat and Monitoring Body of Cargo Logistics
XXV.
Legal Framework on Public/Private financing
XXVI.
Urban Plans, agricultural plans, city plans/port of Colon.
5. Developments of today and tomorrow
To come to a deep understanding of Panama’s current logistics progress we will reflect upon how
the IDB’s recommendations are being implemented. As IDB’s action recommendations were
institutional and project based – and they’re highly interdepend- we will present you the latest
developments regarding both.
5.1 institutional developments
When President Juan Carlos Varela took office in July 2014, it was the Panama Maritime Authority
that took initiative and placed the Logistics Cabinet under its wings. Two months later, the Ministry
of Industry and Commerce requested for the Cabinet to be placed under their supervision. It was
decided that the Logistics Cabinet was to be placed directly under the Presidency to shorten the
linkage to the decision makers and financiers as much as possible.
The Logistics Cabinet consists mainly of ministers. They have decision making power but lack
coordination capabilities. Therefor the need for a Logistic Secretariat is substantial. Such
Secretariat would have the organizational and coordination capabilities to take on a management
role to oversee and steer the development and integration of all logistic players, of course with
strong back up – leadership - from the president/government. Most importantly, the Secretariat
would implement and delegate the blueprint of recommendations supplied by the IDB as much as
possible. In April 2015 the Logistics Cabinet has to present its foreseen budget. It is expected that
within this timeframe the Logistic Secretariat will be established. The pressure from the public and
private sector to create the Secretariat is very high.
http://www.iadb.org/es/noticias/comunicados-de-prensa/2013-06-24/panama-lanza-nueva-ventanilla-unica-decomercio,10495.html
10
In President Juan Carlos Varela’s Five Year Plan 2015 the logistics sector is marked as key sector for
Panama’s development. As the National Logistics Plan forms the basis for the Logistics Cabinet and
as the plan urges the need for a logistics Secretariat, we expect it to be realized this year.
5.2 Project developments
IDB’s project recommendations cover a time period from 2014-2024. Over the last couple of
months we’ve seen many tenders announced and released for medium-large logistic projects that
were recommended by the IDB. Various institutions and companies are taking advantage of the
many opportunities that suddenly became tangible. Opportunities they came to understand as
necessities to increase the return on profit of the expansion of the Canal and the development
Panama as whole.
Below you will find an overview of the most important current and expected projects starting with
an outlook on the most recent port developments.
Port of Corozal
One of the biggest and latest developments is the new port of Corozal by the Panama Canal
Authority (ACP). Though they are still working on a bill to start its development, soon the ACP will
initiate the process of prequalification and tender negotiations. The Corozal project will be
developed in two stages; first they’ll construct a 1350 meter dock and a container park, then they
will construct a second dock of 731 meters. Companies such as Manzanillo International Terminal
(MIT) have already shown interest. The port will be located in the entrance of the pacific side of the
Canal. This makes for technical challenges – such as the coordination between ships passing
through the canal and ships entering and leaving the docks - for which Dutch expertise can provide
solutions.
RoRo port and Logistics Park
The Panama Canal Authority (ACP) has plans to release two tenders in 2015 for the construction of
a Logistics Park and RoRo port on the Pacific side. The ACP themselves will invest in the dredging
necessary for the construction of the RoRo port. Both the Logistics Park and the RoRo port will be
located on an area of 900ha prepared for development by the ACP near the new Pacific Locks, west
of the Panama Canal.
Port of Armuelles
The Maritime Authority of Panama (AMP) and the Latin American Development Bank CAF
announced they want to develop the Port of Armuelles, known as a deep sea port and for its former
banana transport, and explore the development of an intermodal dry canal. This should connect the
port of Armuelles on the Pacific side to the Atlantic. The Development Bank of Latin America CAF
and the Ministry of Finance will also invest to initiate a new type of maritime industry for the Port
of Vacamonte.
11
LNG
The ACP signed a cooperation agreement with the Port of Lake Charles in Louisiana, the United
States. This is part of a strategy to attract players of the Natural Liquefied Gas (LNG) market as the
expansion of the Canal route allows for more and bigger LNG vessels.
New toll structure for canal
The ACP announced a proposal for a new toll structure to benefit economies of scale and larger
vessels. Accordingly, the ACP argues that this structure reduces the current toll rate as each
segment will be priced based upon different units of measurement. For instance, containers will be
measured and priced on TEUs, dry bulkers will be based on deadweight tonnage capacity and
metric tons of cargo, and LNG will be based on cubic meters. The adjustments for all market
segments, except for the new Intra Maritime Cluster Segment, are scheduled to begin in April 2016.
Tocumen Airport
The international airport of Tocumen is analyzing the feasibility to create a free trade zone located
at the cargo terminal. The plan to develop a new cargo terminal with value added logistic services is
foreseen to be crystalized in the next 6 months. Tocumen Airport will release tenders to increase
the number of shops at the airport as they’ve planned to increase their capacity from 8.5 million to
10 million passengers.
Public investments
Regarding the state budget of 2015 president Juan Carlos Varela announced:
1. construction of a fourth bridge over the Canal on the Pacific side
2. wastewater treatment plant
3. expansion of the Inter-American highway between Arraiján and the Bridge of the Americas
4. modernization of the public transport system
Furthermore the government has shown interest in developing a cruise terminal in the area of
Amador, Panama City, a project left by the former government. New studies showed that the area
with most potential to construct a cruise terminal is the beginning of the Causeway Amador. The
necessary investment is recommended to come from both the private and public sector. Currently
an agreement is negotiated amongst the Cruise Association of Florida and the Caribbean (FCCA) to
include Panama in their routes.
The Ministry of Public Works announced the construction of 19 road infrastructure projects
foreseen in 2014-2019. They’ll have a budget of $899,6 million starting 2015.
Overall we see many initiatives and tenders regarding potable water and irrigation systems.
Restoration of Colon and the construction of sanitary units is also high on the public agenda.
12