What has been the impact of COVID-19 on Panama's logistics and transportation sector?
Our numbers for container traffic in 1H2020 were better than in 2019, but we started to see a slowdown in June, with some of the lines not serving calls they were planning for a few weeks. When we look at the impact on our main business, which is transshipment of containers, we are looking at a 4% decline for the year. The reason we have not been impacted relative to other ports that had 10 to 20% declines is because many of the lines that were making direct calls to certain countries did not make sense for the amount of business they had to make all those direct calls. It was a cost cutting optimization for them to dump or leave it at a hub and use smaller feeder vessels or less frequent callings to other ports. We, therefore, have not suffered as bad as a transshipment hub but our revenue has declined significantly because our local cargo has declined by about 40%.
What effects of the current pandemic do you believe will be part of a longer-term trend, outlasting the pandemic itself?
On the transshipment side, we are feeling an impact not only from the coronavirus but also the US-China trade war. As a result, a lot of countries are looking at regionalization. This means a major hub for transshipment like Panama should benefit in the next three to five years. As for the local cargo business, it will take at least another one to two years before we can get back to pre-COVID levels. I do not think this will happen next year but perhaps in 2022 we will get to 2019 levels for local consumption and imported goods. A lot of companies have approached us because we are building a high-tech warehouse inside our Pacific port of Balboa. It will be the first high-spec modern warehouse inside a port in Panama. We are doing a pilot project starting this August and it has already attracted a lot of interest. During the pandemic, a lot of companies have looked to store cars and products here instead of sending them to Colombia or Brazil. I think this push will continue in the near future. The government has recognized Panama's potential as a hub for DCs or other types of facilities. This will strengthen Panama's role as a port hub in the mid to long term.
How do you see Panama maintaining its role as a logistics hub, particularly for transshipment, versus other regional competitors with similar ambitions and government initiatives?
Two major competitive advantages that Panama has over regional competitors such as Jamaica and the Dominican Republic are a key strategic location and the canal. Panama has been a regional hub for Central America for a long time, and over this time the local workforce has developed a skill set. The Dominican Republic has a good cost base and lots of space, so it is a strong competitor, but Panama has other competitive advantages to offer. Government policies will play an important role in the future. In Panama, the government is pro-business as its wants to see the country realize its potential as a regional logistics hub. They have already developed some economic policies to support this hub status to encourage companies like Walmart to set up here. Whether implementation happens or not is a question because Panama has one of the highest labor cost in the region.
What are some of the biggest operational challenges you have had to face due to the COVID-19 pandemic?
It has been a challenge that has actually brought everyone together as a team. Until early June, all my department heads and I had daily calls as we had to constantly implement new directions from the government. Unfortunately, we had close to 200 confirmed cases in our two ports. 80 these were from our staff and the rest were government employees and contractors. The virus has had a major financial impact on our business. We spent around USD1 million extra already on Covid-related expenses and expect to spend around USD2 million overall by the end of 2020, excluding overtime. We always strive to be one step ahead of the government. For example, we are implementing thermal cameras at the ports. My next focus is a pilot project to see how we can do facial recognition for people to clock and be linked to payroll instead of people using biometrics or a card. We are trying to make our business as contactless as possible. This will help us stay ahead of the market. We have not had any work stoppages as many of the ports in the region have had because we have been constantly having bi-weekly or weekly open forums with the staff. Communication and transparency has allowed us to avoid work stoppages or major internal issues.