Panama has spent over 5 billion US dollars to widen and dredge the Panama Canal to support a new class of supersized cargo ships - known as Post Panamax ships - that are more than twice as big as the historical cargo shipping fleet. The expanded Canal will open in 2015.
The North America to Asia trade lanes have mainly relied on the Ports of Los Angeles and Long Beach. Then intermodal shipments via rail and truck have brought a high proportion of this cargo to the Midwest and East Coast. But now, a higher proportion of freight can start to flow to East Coast and Gulf ports. In fact, this is already happening: Colliers International reported that “for the first time since World War II, the East Coast surpassed the West in container traffic growth. Eastern ports saw traffic grow by 5.5 percent in Q1 2012 over the same quarter in 2011, as compared with 3.0 percent in the Western ports.” And that trend is expected to accelerate once the widened canal is open.
Many US based logisticians have been eagerly awaiting these developments. It will allow for lower cost shipments to the East Coast, allow large retailers and manufacturers to start to reconfigure their network of factories and distribution centers so that more inventory can be stored closer to East Coast population centers, will help them with their Green scorecards (big ships have a smaller CO2 footprint per load), and provides their supply chains more flexibility and resiliency (the big West Coast ports and the Intermodal facility in Chicago can become congested choke points).
In addition to an expanded Panama Canal, other things – global warming opening the Northwest passage, and a possible Nicaragua canal - could also push cargo to East Coast ports.
But for a couple of reasons, the shift of ocean cargo to Eastern ports is likely to be more evolutionary than revolutionary. A number of obstacles remain:
The infrastructure investments are huge - The Port of New York will spend $1.3 billion to raise the Bayonne Bridge 64 feet to enable clearance of the Post Panamax ships. Almost any port can expect to spend hundreds of millions in environmental impact studies, new cranes, and dredging. Further, once those investments are made, further inland investments must be made to support the port investments. These investments can include bigger freight yards, improved connections to rail heads, support for double decker rail car clearances, etc.
In fact, as large companies seek to rebalance their supply chain network, where they can position new warehouses will depend in part on the investments of major railroads to improve their intermodal capabilities. And of course, companies themselves do not reposition company owned warehouses quickly or easily.
Many ports will not get the funding they need to become Pananmax ready. The Boston Globe wrote an editorial favoring expansion of the Port of Boston, but admitted the ROI of these investments was far from an “easy sell.”
West Coast port economics are also improving – Four East Coast ports will be ready to handle Post Panamax ships by 2015: Baltimore, Miami, New York and Norfolk. But four West Coast parts are already ready: Los Angeles, Long Beach, Oakland and Seattle. While Post Panamax ports will improve the costs of shipping to the East Coast, they also improve West Coast economics. The lead time versus cost tradeoff will not disappear; Longer lead times equates to holding more inventory, and higher inventory carrying costs, to maintain the same service levels.
But perhaps the key tipping point will be whether the widened Panama Canal will lead to better backhaul opportunities for ocean carriers. Because of the trade gap with Asia, too many ships move from Asia full and then back across the Pacific far from full. Too many empty shipping containers end up in North America. If the flows were more even, ocean shipping would cost less.
Just as a widened Canal improves the economics of shipping to the East Coast from Asia, it will improve the economics of shipping from eastern Latin America to Asia. This raises the prospect of a new form of triangular trade – consumer goods from Asia to the East Coast, higher end consumer goods and pharmaceuticals from North America to South America, and coal and iron ore from Columbia, Venezuela, and Brazil to China. Such trade flows would allow for Ocean carriers to charge less for shipment to East Coast ports.
Nevertheless, the best guess is that growth of ocean cargo to the East Coast from Asia will exceed that to the West Coast, but not be dramatically larger in any given year. Still, over the course of a few decades, cargo flows could look dramatically different.
