Market Intelligence Panama: Shipping 2019

An interview with Jazmina Rovi and Francisco Linares

The year started with the World Bank’s ominous warning about a global economic storm gathering in the horizon. The International Monetary Fund (IM)F has cut its global growth outlook to its lowest since the financial crisis. ICS, on its part, states that ‘in 2019, the outlook for the global economy and thus demand for maritime transport appears to be worsening’. Closer to home, ECLAC has revised downwards its regional GDP growth forecast for Latin America and the Caribbean from 1.7 per cent to 1.3 per cent. The Panamanian economy posted a 3.7 per cent GDP growth in 2018. This was a far cry from the country’s China-like growth over the past decade or so, but still Panama was one of the best performing economies in the region in 2018.

It was, nonetheless, a disappointing year for Panama’s overall economy. In spite of this, Panama’s shipping sector proved resilient. The expanded Panama Canal continues to exceed expectations, and the Panamanian ports had their greatest year on record in 2018. Panama’s lifeblood is the global economy, and there are still too many potentially catastrophic events looming in the immediate future, which could severely impact the country’s shipping industry. From the still unresolved US–China trade war, to the growing likelihood of a hard Brexit, to a potential Suez-like crisis in the Gulf of Ormuz, the immediate future for Panama looks fraught with risk, even as Panama’s shipping sector remains robust.

Panama’s position as the region’s premier logistical hub was cemented in 2018. Panama’s Liner Shipping Connectivity Index improved in 2018 (56.5) according to UNCTAD, and continues to lead the region. The country’s Logistics Performance Index (LPI) ranking slipped a bit (from 3.34 to 3.28), though, according to the World Bank. Chile did better in 2018, with a 3.32 LPI. Panama scored low in the customs parameter of the LPI as regards Chile, whereas in the rest of the indicators the two countries had comparable scores. Limitations in inland infrastructure continue to be an issue – though the metro is expanding (taking vehicles off the roads), a third bridge over the Panama Canal is almost finished, with a fourth one on the pipeline. In sum, overall, Panama continues to top the region when it comes to logistics’ performance.

The expanded Panama Canal continues to press full steam ahead. In three years of operation, the new set of locks have produced revenues in excess of US$7 billion. As at June 2019, over 6,000 Neopanamax vessels have transited the new locks. About half of these vessels have been large container carriers, with cargo capacity exceeding 14,000 TEUs. The fastest growing segment, however, is the Liquefied natural gas (LNG) one. The new locks can handle about 96 per cent of the world’s LNG fleet (before, LNG ships could not transit the Panama Canal). Last May, in fact, the Al Safliya – a Q-Flex vessel, with a cargo capacity of 210,000 cubic metres, operated by Qatargas – became the largest LNG tanker to transit through the canal. Whereas 17 LNG vessels transited the expanded canal in 2016, this increased to 290 in 2018. In 2018, 11.5 million tons of LNG went through the canal, an increase of 80.9 per cent as compared with fiscal year 2017. LNG cargo is mostly bound to Asian markets, the principal destinations being South Korea (about 3.2 million tons) and China (about 2.5 million tons). Overwhelmingly, this cargo originates from US ports. Currently, about 50 per cent of the LNG shipped from the US goes through the canal.

In 2018, the Panama Canal Authority (ACP) again reported landmark figures. Some 442 million tons of cargo transited the waterway – a 9.8 per cent increase, and a record figure. There were 13,795 vessel transits in 2018, versus 13,548 in 2017 – a 1.8 per cent increase. In 2018, 2,444 Neopanamax vessels transited the new locks. Revenues went up to US$3.17 billion, out of which US$1.7 billion was paid as dividends to the government – another record. Currently, the new set of locks account for about half the total revenues of the ACP.

The trade war between the US and China has had a minimal effect on the Canal so far. Yet, according to canal administrator Jorge Quijano, the conflict may have already cost the canal up to US$40 million in revenues. Also, China has ceded its place as the canal’s second largest client to Japan. The US is, and has always been, the canal’s largest user, accounting for approximately 60 per cent of the cargo transiting the waterway. That said, with the trade tensions on the high point, and both the US and the Chinese economy slowing down in 2019, the ACP is concerned about the implications of potential commercial disruptions to its revenue forecasts. As Mr Quijano said in a recent interview ‘tensions [between China and the US] could ultimately have an impact on the amount of loadings using the waterway in any direction.’ Still, Mr Quijano remains optimistic, and foresees Canal revenues reaching US$3.2 million in fiscal year 2019 – an increase of about 2 per cent.

The complex relationship between contractors GUPC (Sacyr/Jan De Nul / Impregilo) and the ACP has finally come to a conclusion, as the former passed all maintenance operations on the new locks to the latter. The only matter now pending between them are the several arbitration proceedings for an excess of US$5 billion, many of which are still ongoing. The ACP has been successful in the early arbitration rounds, recently recouping US$847 million from GUCP. It is expected that a claim regarding the quality of concrete – for US$347 million – will be adjudicated in 2020. As for the pending three claims, arbitral proceedings are expected to drag into 2023.

Due to its strategic location and the presence of the Canal, Panama is a natural bunkering regional hub. The country has eight bunkering terminals – four at each side of the Panama Canal – with an aggregate storage capacity of about 11.7 million barrels. In addition, 11 private companies operate some 45 barges (30 in the Pacific and 15 in the Atlantic side). Coming out of a strong performance in 2017, the bunkering industry slowed down in 2018. Total fuel oil sales in 2018 amounted to 4.55 million metric tons, as compared with the 4.63 million metric tons sold in 2017 – a 2 per cent shortfall. Diesel oil sales, however, fared better in 2018, with a total of 421,000 metric tons sold versus 360 thousand metric tons in 2017. In the aggregate, however, sales diminished in 2018 by 0.5 per cent. The biggest factor in this decline, clearly, were the subpar fuel oil deliveries in the Pacific side. The situation in 2019 is not looking any better. Overall sales dropped by 13.6 per cent in the first five months of the year, with a reduction of almost 15 per cent in the number of vessels attended, according to preliminary industry data. According to the Maritime Authority of Panama (AMP), this is the worst start for the local bunkering industry in the past five years. Among the causes listed for this decline are the ‘bad bunker’ quality problem, which reportedly originated in the US Gulf region in March 2018, as well as the trade tensions between the US and China. This, coupled with the impending IMO 2020 requirements, may suggest a challenging immediate future for the local bunkering industry. The big question is whether industry can adjust and make Panama regional hub for cleaner fuels. Recent developments seem to suggest that it very well could. Industry sources indicate that Panama is getting ready to supply IMO 2020 compliant fuels. LNG is part of the mix. AES currently operates a 180,000 cubic metre LNG storage facility in Atlantic, capable of supplying vessels. Also, the ACP plans to develop and an LNG terminal at the Pacific end of the canal.

Total regional container throughput improved by 7.7 per cent, according to ECLAC. In fact, Panama’s port system had a record year in 2018, with throughput of 70,014,393 TEUs. For the first time in history, Panama exceeded the 7 million TEU mark. Panama has five world-class container terminals – three in the Atlantic (SSA, Evergreen and Hutchison), and two on the Pacific side (Hutchinson and PSA). At the Pacific end, PSA’s new expanded facility became fully operational in 2018. Meanwhile, the new container facility being developed by Landbridge Group at Margarita Island, in the Atlantic side, has experienced some delay, but its expected to commence operations in late 2019. This will add an extra 2 million TEU of capacity to the system. Pushing the upsurge in 2018 was the Colon port complex, in the Atlantic. Indeed, Colon’s throughput grew 11.1 per cent in 2018 and remains the region’s most active port zone, according to ECLAC. Ports in the Pacific, however, slowed down considerably in 2018, dropping in the rankings from the number 3 position held in 2017 to number 5, according to ECLAC. Overall, however, 2018 was an excellent year for Panama’s ports. Preliminary data for the first five months of 2019 show an increase in movements of about 1.8 per cent for the whole system. Thus, despite the risks clouding the global economy, there is reason for optimism. A recent study commissioned by the AMP estimates that the Panamanian port system could realistically achieve a 20 million TEU throughput within the next two decades.

Panama’s ship registry continues to lead, both in number of vessels (about 8,000) as well as tonnage (about 220 million). PSC track record remains good, and even though the registry’s market share has shrunk since its high point in the early 2000s it still covers close to 17.5 per cent of the global commercial fleet. Some challenges ahead are the relative age of its tonnage, the need to incorporate new technologies in the registration process as well as to rationalise processes themselves, the acute competition and the impact of this on key markets, and current economic as well as geopolitical tensions. A good start in 2019, with several newly built vessels being registered in Panama – such as the MSC Güslün, a 23,000 plus TEUs ultra large container vessel – bodes well for the shipping world’s most popular flag.

Even though the economy was sluggish in 2018, and in spite of the clouds dampening the global economy, there are good tailwinds pushing in Panama’s favour. Both the World Bank and the IMF predict a 6 per cent growth for 2019. This is probably an overoptimistic forecast. ECLAC projects a more realistic 5.4 per cent growth. Be that as it may, there is consensus that Panama will be one of the best, if not the best, performing economy in the region in 2019. Capital markets seem to agree with this. In mid July 2019, Panama successfully placed treasury bonds for US$2 billion. This bond issue consisted of two tranches: US$1.25 billion in 10-year treasuries, and US$750 million in 40-year treasuries. It was the highest bond offering ever by Panama in the international capital market. The bonds sold out immediately, achieving the lowest interest rates historically for similar debt instruments.

Panama continues to work out the details of its new relationship with China. President Xi Jinping made a historic first visit to Panama in late 2018. He met with and signed some 20 agreements with Panama’s then President Juan Carlos Varela. Most of these agreements pertained to economic matters, raging from phytosanitary guidelines to infrastructure investment. On that front, there are serious discussions under way for the construction of US$5 billion high-speed rail service from Panama to Chiriqui (bordering Costa Rica). Panama and China are currently negotiating a free trade agreement (FTA). Several rounds of negotiations have concluded, and the next round is expected to commence in September 2019. It is anticipated that an FTA with the world’s second largest economy will open enormous opportunities for Panamanian exports, particularly agricultural products.

Panama held presidential and congressional elections in May 2019. The opposition party PRD obtained a solid victory, gaining the executive as well as a controlling majority in congress. The PRD also seized control of the all-important Panama City, where the bulk of the country’s economic activity is generated, and where about one-third of the population lives. A traditional centre-left party, it has over the past 20 years fostered strong, pro-growth economic policies. Newly elected president, Laurentino Cortizo heads a government composed of qualified, experienced individuals at key positions. The most salient ones are Aristides Royo (former negotiator of the Canal treaties, former ambassador to Spain, France, the OAS, former Minister of Education and former President of Panama) at the Ministry of the Panama Canal, Alejandro Ferrer (former Deputy Minister of Foreign Affairs, and former Minister of Industry and Commerce) at the Ministry of Foreign Affairs, and Hector Alexander (a Chicago trained economist, who studied under Milton Friedman, and former Minister of the Treasury and of Economy and Finance) at the Ministry of Economy and Finance. At the AMP, the new government is betting on technical expertise for its leadership. The top positions at the AMP have been assigned to engineers and mariners – a move that has been well received by experts.

Panama remains the largest ship registry in the world. It has a firm track record adopting and implementing of IMO conventions and other international standards and regulations that impact the maritime industry. PSC performance continues at a high level. Current issues that have and could continue to impact the registry – directly or indirectly – are, first, the tightening of sanction regimes imposed against particular countries by the UN, EU or the US. Second, the coming into force of IMO 2020 emission restrictions could affect the registry, although the extent of this is impossible to guess.

The Panamanian registry has experienced moderate growth, in comparison to its main competitors – Liberia and the Marshall Islands. These two are in a tug-of-war over second place among the world’s largest registries, but there is considerable distance between them and Panama. Yet, these competitors have grown at impressive rates recently. Such a fast growth pace poses a clear challenge to Panama’s pre-eminence. In addition, there are some markets where these two competing registries have gained a solid foothold. Panama has enacted stricter regulations aimed at expediting the deletion of vessels engaged in activities that violate international law or Panamanian public policy. This factor alone has produced some loss of registered tonnage over the past year. IMO 2020 may have an adverse impact as well, as Panama’s fleet is composed of smaller, relatively older vessels, whose commercial operation may be significantly compromised by the new regulations. That said, registry authorities are conscious of these challenges, and are committed to introducing new technologies, marketing approaches and even structural reforms necessary to remain ahead in today’s competitive environment.

Asia and Europe are still the primary sources of financing for Panamanian flagged vessels. Conditions appear to have improved in 2018, as in general lending seems to have picked up. There has been much refinancing. Also, there has been a lot of state-supported fund guaranteed lending, particularly from Asia, as well as an appreciable increase in non-traditional financing schemes. Panama, being the largest ship registry in the world, with a well-known and trusted legal framework for securing marine credits, remains a preferred jurisdiction of blue-chip maritime lenders. Flexibility, reliability and convenience are the hallmarks of the Panamanian ship mortgage and ancillary security mechanisms. This lender-friendly legal system is, without doubt, one of the fundamental reasons why Panama has the largest ship registry in the world.

There were some interesting decisions by the Maritime Appeals Tribunal (MAT) during the past year or so, dealing with important procedural topics of conflicts of law, time-bar computation, discovery and contempt of court.

The first of these was issued by the MAT in the case of Panama Ship Repair and Services (PASRAS), SAv.- M/V ‘Chaser’ (MAT/01.06.2018). This was an in rem claim in respect of repair and maintenance services provided by a Panamanian company, to a Panamanian vessel, at the request of her Greek owners. The case involved a series of five separate visits by technicians to the Chaser in three different countries: Colombia, Panama and Guatemala. Each of these visits was invoiced separately. Conflicts of law issues are determined in Panama by article 566 of the Code of Maritime Procedure (CMP). Under rule 13 of article 566 of the CMP, for claims in respect of goods and services provided to vessels, the applicable law to the dispute would be that chosen contractually by the parties, or – in the absence of this – that of the place where the services were provided. Since there was no contractual choice of law, counsel for the vessel argued that each invoice constituted a separate contact, to be governed by the law of the location where the particular service was provided. In sum, the vessel’s counsel argued that three different legislations should apply, depending on where the invoiced services were provided.

There had been some old lower court precedents, suggesting that the law of the flag applied in these situations. The issue, however, had not been clearly defined at the higher court level. The MAT ruled that there was only one contract involved here, executed in phases. The MAT relied on the ‘proper law’ doctrine, as understood in the US, and which – in the Court’s view – had been incorporated into Panama’s legislation through article 69 of Law No. 61 of 2015 (known as the Code of Private International Law). The MAT concluded that Panama had the closest contacts with the contract in question, and ruled that Panamanian substantive law applied.

Time bar in our maritime courts is always determined pursuant to the substantive law that is applicable to the particular dispute. There are, however, some procedural components to this, as the CMP has specific rules for interrupting the running of prescription. In the case of Base Zona Libre, SA v Assicurazioni Generali SpA (MAT/04.07.2018), consignees sued their insurers, on a marine cargo policy. The time bar for such action is one year, according to the Panamanian Commercial Code. Under the CMP, prescription is interrupted either by serving process on the defendants or by publishing a certificate of filing in a local newspaper. In this case, such certificate was published by the plaintiffs before the one-year time bar expired. However, the defendants took service of process after this one year had elapsed. They moved to have the case dismissed summarily due to the time bar. The plaintiffs’ counsel filed an opposition brief and attached a copy of the published certificate. However, this brief was filed after the five-day term provided by the CMP to oppose interlocutory defences. The lower court, thus, rejected plaintiffs’ brief and the evidence appended to it. Accordingly, the judge concluded that the claim was time barred. On appeal, the MAT reversed. The MAT concluded that the lower court had made a clearly erroneous factual finding – namely, that there was no evidence on file that prescription had been interrupted. Though plaintiffs had introduced the certificate of filing with their extemporaneous opposition to the time bar defence, there was no legal basis for the lower judge to dismiss that piece of evidence. There is a difference in the procedural timeliness of written argument submissions and the timeliness of evidentiary submissions. Though it was appropriate to dismiss plaintiffs’ untimely opposition brief, the evidence appended to it was timely filed, as it was introduced in the file well before the judge ruled. As the only thing the judge needed to consider was whether or not a certificate of filing was published, the fact that the evidence of this was in the file should have compelled her to rule for the plaintiffs.

Finally, there was the case of Acerta Compañia de Seguros, SA & Metalco Panama, SA v M/V ‘Bulk Honduras’ & Dry Bulk Oceans, Ltd (MAT/04.06.2019). Panama’s maritime jurisdiction is an offshoot of the admiralty jurisdiction enjoyed by the Canal Zone district court, as provided by section 8 of the Panama Canal Act of 1912 and, ultimately, by sections 1 and 2 of article III of the US Constitution. The CMP is, in many instances, a verbatim translation of the US Federal Rules of Civil Procedure extant in the early 1980s. The CMP was originally enacted in 1982, and it contains a provision almost identical to Rule 26 of the Federal Rules, in force back then. Rule 26, of course, regulates discovery. In Bulk Honduras, cargo interests brought a claim under a set of bills of lading against vessels and vessel owners, for breach of a contract to carry steel coils. Lawyers for the carriers requested the production of certain important documents, through the CMP’s version of Rule 26. The plaintiffs failed to produce the documents, and the judge found them in contempt of court. The matter went to trial and there plaintiffs introduced the very documents that had been previously requested by the defendants through discovery. The defendants objected to this, and the judge found the evidence to be inadmissible. On appeal, the plaintiffs argued that the lower court had made a clearly erroneous factual finding,in refusing to consider material evidence validly introduced before a decision on the merits was issued. The plaintiffs argued that this violated procedural due process, curtailing their right of defence.

Though they had been found in contempt for failure to comply with discovery, plaintiffs argued that this only warranted a pecuniary sanction, and not the outright rejection of material evidence. The MAT confirmed the lower court’s decision, finding that contempt of court regarding discovery allows the judge to throw out evidence that should have been produced. The decision in Bulk Honduras offers interesting contrast to the ruling in Base Zona Libre. The rule derived from these two cases appears to be that a mere procedural inadvertence would not necessarily invalidate evidence filed by the transgressing party, while a deliberate, positive disobedience of the judge’s orders would.

The Panamanian economy grew at a slower pace in 2018, but shipping had an encouraging year. Except for bunkering, the rest of sector either maintained its level of performance or improved it. The likely reasons behind the decline in the local fuelling industry were events unconnected with Panama. Panama has intrinsic logistical advantages, that should allow it to flourish as a regional fuelling hub. Billions of dollars are being invested in clean fuel facilities, and so industry should be poised to bounce back and even thrive going forward. The Panama Canal remains the centrepiece of the maritime sector, and judging from past recent history, more record-breaking years are expected. Finally, there seems to be a genuine commitment by the new authorities to adopt the pragmatic measures that are necessary for the Panamanian registry to regain market share. Panama’s economy, like that of other global hubs such as Singapore, is closely tied to the global economy. Many things are, thus, beyond the control of local policy makers and business leaders. Much of what lays ahead – for good or ill – depends on decisions to be taken in places far from Panamanian shores.

Jazmina Rovi


Jazmina Rovi is a partner in Morgan & Morgan’s ship finance and registration group. Mrs Rovi obtained an LLB from the School of Law of the University of Panama (1989). She also has a PhD in private international law of the Autonomous University of Madrid (1994). Mrs Rovi has wide expertise on all types of registration schemes under Panama flag and ship finance structures, including ship mortgages and pledge of shares. She has played an active role in drafting various pieces of maritime legislation. Mrs Rovi previously presided over the Maritime Law Association of Panama from 2011 to 2013 and is currently its president.

Francisco Linares


Francisco Linares is a partner in Morgan & Morgan’s admiralty litigation group. Mr Linares obtained a BA in philosophy and economics from Notre Dame University (1992), a JD (cum laude) from Tulane University, specialising in maritime law (1996), and a diploma from Panama’s Maritime University (2010). Mr Linares has 20 years’ experience in all types of maritime claims. Clients include shipowners, P&I Clubs and underwriters. Mr Linares has taught maritime law at the Santa Maria La Antigua University and was part of its board of advisers. He was the president of the Maritime Law Association of Panama from 2017 to 2019.

Accreditation: Reproduced with permission from Law Business Research Ltd. This article was first published in Getting the Deal Through – Market Intelligence Shipping Panama (Published: September 2019). For further information please visit