The hubbub surrounding the United Kingdom’s decision to leave the European Union overshadowed the opening of two new locks on the Panama Canal on June 26th. The expansion of the canal has the potential to disrupt intermodal transport in the U.S.
The new locks, which cost $5.4 billion and took nine years to build, will allow vessels with a capacity of nearly 9,500 TEUs (20 foot containers) to transit the Canal. This is nearly three times the capacity of the largest ships that will fit through the original locks built in 1914.
For Asian shippers and U.S. importers, the Canal’s expansion adds the possibility of a more efficient, all water route to ports on the East and Gulf coasts of the United States. These ports have spent more than $150 billion to develop the infrastructure needed to handle these larger ships.
Ports on the West Coast saw a shift to the Panama Canal during 2015 labor disruptions, but have since regained a lot of that business. Some of this container traffic may shift to the Panama Canal now that it can handle larger vessels. However, the new classes of vessels with a capacity of 18,000 TEUs will continue to use West coast ports and will be able to call at U.S. East coast ports via the Suez Canal when infrastructure improvement projects, such as the raising of the Bayonne Bridge between New Jersey and Staten Island, are completed.
Railroads will also be impacted by the canal expansion. Rail companies serving the East coast could see increased traffic, while those on the West coast may see a decline.
The overall economic impact depends, of course, on the bottom line. On the one hand, will the increased competition between an all sea route to the U.S. East and Gulf coasts via the Panama Canal and the traditional intermodal route via rail and truck from the West coast result in savings to importers. And on the other, will the ocean and intermodal carriers be able to deliver these savings and remain profitable.
Clark Hill will continue to monitor this trend and provide updates as they become available.
Did you subscribe for our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Clark Hill PLC
