Panama Canal Expansion Pits East Coast vs. West Coast

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Asian shippers are siding with the Notorious B.I.G.’s declaration of regional loyalty from the 1997 hit “Goin’ Back to Cali”: “If I got to choose a coast, I got to choose the East.” The expansion of the Panama Canal that doubled its capacity has started shifting freight to east coast ports, which have invested billions in dredging, construction, and equipment purchases to take advantage of the increased flow.

The canal expansion’s manifold impacts on U.S. trucking are already starting to be felt: large shifts in freight from the west coast to the east coast will lessen demand for west coast intermodal, rail, and longhaul capacity; we also expect a decrease in demand for outbound capacity from Chicago. Since more freight will be delivered closer to population centers on the east coast, shorthaul drivers should see an increase in demand. Distribution centers across the southeast, from New Orleans to Baltimore, will see heavier use. East coast ports like Savannah are making a play to supply freight to Chicago, and the larger Midwest.

In 2006, Panamanian president Martín Torrijos announced an ambitious plan to double the capacity of the Panama Canal, which was expected to reach maximum operating capacity in 2012. In recent years, large queues had formed at the entrances to the canal, with waiting times as long as 13 days. “Just like petroleum that has not been extracted is worthless and in order to extract it you have to invest in infrastructure, the canal requires expanding its capacity to absorb the growing demand of cargo and generate more wealth for Panamanians,” Torrijos said.

The expansion project added a third lane to the canal’s two existing channels, and the new lock chambers on that lane are 427 m (1,400.92 ft) long, 55 m (180.45 ft) wide, and 18.3 m (60 ft) deep. The new lane allows much larger ships to transit the canal: the old Panamax ships had a maximum capacity of about 5,000 TEUs (twenty-foot equivalent units); the Neopanamax ships top out at 14,000+ TEUs.

The expanded canal began operation on June 26, 2016. Several U.S. ports undertook their own expansions to accommodate the New Panamax vessels: the Port of Miami’s Deep Dredge project cut a new 52-ft deep lane into the harbor; the South Carolina Ports Authority is spending $1.6B in Charleston on dredging, a new terminal, rail line, and improvements to its wharf. In New Orleans, a new on-terminal intermodal container facility, adjacent to a 12-acre railyard at the Napoleon Avenue Container Terminal, is projected to boost the port’s annual capacity by 200,000 TEUs to a total 840,000 TEUs.

The ripple effects from the canal expansion are being felt even further north. The Port Authority of New York and New Jersey has begun a project to raise the deck of the Bayonne Bridge and dredge deeper channels, which will benefit all east coast ports. The more east coast ports that can accommodate Neopanamax vessels, the more cost effective it will be to build them and send them through the Panama Canal.

Brian Taylor, the CEO of the Jacksonville Port Authority said, “I have been hearing that over the next five years we will likely see about a 10 percent cargo shift from West Coast to East Coast ports, or roughly nine million TEUs.” Others predict that the expanded canal could take up to 35% of current west coast freight. In the other direction, the expansion opens up Asian markets for ships carrying American liquefied natural gas, which were too large to go through the old canal. In general, east coast-bound ships carrying low-margin commodities are more likely to use the canal because for them cost is more important than time. High-value, time-sensitive goods, such as electronics, will still use west coast ports and rail.

Charleston and Savannah are already setting records. The Port of Charleston received its largest ship ever in September, the CMA CGM Theodore Roosevelt, capable holding 14,855 TEUs, after it transited the new canal. Charleston handled over 184K TEUs in October, a monthly record. Container traffic at the Port of Savannah grew 32% for the month of October and exceeded 400K monthly TEUs for the first time ever.

“Since the opening of the expanded Panama Canal, Garden City Terminal has experienced meteoric growth,” said Georgia Ports Authority Executive Director Griff Lynch. “We’re now handling more ships, bigger vessels and larger cargo exchanges. By working more weekly vessel calls than any other East Coast port, and serving more neopanamax ships than any other port in the U.S. Southeast, Savannah has strengthened its position as a vital gateway to the global marketplace.” Savannah handled 3.7 million TEUs in 2015 and by 2025 expects to be handling more than five million TEUs per year.

Theresa Atkins, the Director of Industry Partnerships for Supply Chain & Logistics at Georgia Tech, told me that “the management team at Georgia Ports Authority has been very forward thinking in preparing for the arrival of 14,000+ TEU ships. They’ve been working with Georgia Tech faculty members on managing variability from an operational flow perspective… they’re now experiencing over 5,000 moves per vessel.” Atkins also noted the Appalachian Regional Port project, which will consist of a 388 mile direct rail line from Savannah’s Garden City Terminal to a new all-truck dray in northwest Georgia’s Murray County, right off I-75. The Georgia Ports Authority and CSX partnered to create this new intermodal freight lane.

The long term effects of the Panama Canal expansion remain to be seen, but ports on the Gulf and east coasts expect stable growth for years to come, and eventually the way the Midwest gets its freight will be transformed beyond recognition. Savannah, after all, sits 1,000 miles closer to Chicago than Seattle or Los Angeles, and is finally in a position to maximize its potential.

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Source: Freight Waves by John Paul Hampstead

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