Panama Canal Expansion: Four Keys to Unlocking its Potential
The Panama Canal's new set of locks offers the opportunity to increase ocean transportation by more than twice the number of containers on one ship, creating a potential sea change in economies of scale. Here's what shippers need to know.
Today's global macroeconomic and cross-border logistics environment is already incredibly complex, with higher U.S. domestic consumer demands and expectations than ever before. The Panama Canal expansion adds another variable into the competitive global shipping equation, providing an all-water alternative for products destined to the U.S. East Coast and the Midwest.
The improved canal accommodates 12 to 14 additional vessels per day, or more than 2,000 additional trips annually. It also accommodates ships as large as 13,000 TEUs, in contrast to the previous 5,000-TEU limit. The higher-capacity locks can accommodate 87 percent of the world fleet, excluding only the largest of all ships.
During a recent meeting with Panama Canal Authority Executive Vice President Oscar Bazan, I gained insight into the expansion's impact. From route selection and vessel strategy to warehouse and distribution real estate decisions, shippers need to consider the following four implications:
- Canal expansion creates a potentially more cost-effective alternative for reaching the East Coast. As the faster all-water route from Asia, the Panama Canal expansion gives shippers an alternative to the Suez Canal for reaching the United States.
Although it is still faster for cargo from Asia to be shipped to West Coast ports, then transferred east by rail or truck, the Panama Canal expansion allows for new economies of scale by providing larger ships with a cost-effective, all-water route from Asia to major U.S. East Coast ports. That drives down the TEU cost and further strengthens the Panama Canal's appeal.
- East vs. West means new possibilities for cost savings. Though Los Angeles/Long Beach still dominates in its ability to serve large vessels and transfer cargo to the U.S. heartland, all the leading East Coast ports have been investing in major infrastructure and capital improvements. This West and East Coast TEU rivalry is likely to intensify as shippers continue to seek lower-cost options as well as mitigate risk with port diversification strategies.
As much as 10 percent of container traffic between East Asia and the United States could shift from West Coast ports to eastern seaboard counterparts by 2020, according to research from The Boston Consulting Group and C.H. Robinson.
- The industrial real estate landscape has the potential to shift, too. With demand for prime warehouse and distribution space expected to remain elevated over the next few years, coastal markets offering the best interconnectivity to larger population bases and intermodal infrastructure should see the greatest impact from the expanded canal.
- It will take time to adapt, so plan ahead. Ocean carriers want to put their larger vessels into service calling on U.S. East Coast ports, but most of the ports still have work to do to accommodate them. The growing mandate to reach consumers more cost-effectively compels supply chain professionals to consider how the expanded Panama Canal will affect their global supply chain network.
The new locks have only been operating since June 26, 2016, but the worldwide logistics community is already opening up the doors to a whole new level of possibilities.