Source: Reuters MEdia

The Impact The Panama Canal Expansion Will Have On Shippers

The opening of the expanded Panama Canal, originally planned for 2014, is now set for next April. Workers are currently implanting the third set of 22-story lock gates that will accommodate what are called the Post-Panamax vessels, massive ships carrying up to 14,000 TEU container equivalents of freight. Even more expansion may be in store in the future. Earlier this spring, the Panama Canal Authority revealed it’s studying the possibility of adding a fourth set of locks which would accommodate an even newer generation of ships carrying 20,000 TEU container equivalents – in other words, Post-Post-Panamax vessels.

Racing to keep up with how this will play out in the world, logistics service providers and government officials across the globe quickly announced dozens of supply-chain infrastructure expansion projects across North America as well as other parts of the world. Ports across the Southeast and the Gulf Coast anticipate receiving the biggest direct impact. The ports of Miami, Baltimore, Charleston, Jacksonville and Philadelphia have long been digging, dredging and building to accommodate the larger Post-Panamax ships.

The Port Authority of New York and New Jersey plans on expanding capacity by raising the Bayonne Bridge. Georgia and South Carolina ports are cooperating on developing the new Jasper Ocean Terminal, a $500 million project that will handle 7 million cargo containers each year.

Ports are not the only platforms to be effected. The Panama Canal expansion will exert enormous impact on all forms of intermodal transit. Even before the canal officially opens, major infrastructure upgrades are underway at various inland locations. Atlanta, Chicago and Columbus are getting ready to handle much more traffic, as is Dallas, another non-port city. Rail operators, trucking companies and even airlines have been investing in infrastructure improvements in anticipation of Post-Panamax.

Some studies done on the impact of the expansion, including an often-cited report by Cushman and Wakefield, project a significant impact on intermodal transit. Rail and maritime transport, usually lower mile-for-mile than trucking or air, may also absorb substantial new business as shippers look to minimize their trans-shipment cost exposure.

Not everyone thinks the Panama Canal expansion will be “the greatest thing since slice bread” however. A report back in 2014 by Allianz Global Corporate and Specialty (AGCS) highlights certain risks that are inherent with the expansion in their report entitled “Panama Canal 100: Shipping Safety and Future Risks.”

In that report, Allianz points to the following risk factors:

  • Doubling of traffic through the Canal will increase the value of insured goods moving through the canal by approximately $1 Billion per day
  • General concerns about the increased size of the vessels moving through the Canal resulting in potential increased losses
  • Potential delays at US ports due to the mere size of these larger ships with the potential of interruptions in business; can you say “West Coast Port slowdown?”
  • Potential blockages in an already congested shipping environment
  • Estimates of 12-14 larger vessels passing through the canal on a daily basis, equating to 4750 additional ships per year

The reality is that with these larger ships, larger issues and concerns are definitely a possibility.

To move from what could be termed “negative” impacts of the widening of the Panama Canal, transportation and logistics consultants like me are busy scrutinizing the canal expansion from the perspective of transportation costs. It’s still too early to talk numbers, but I think overall shippers will see reduced costs per unit, reflecting obvious economies of scale. Shippers who can tolerate all-water routings of up to four weeks can anticipate the biggest savings, provided vessel operators resist taking advantage of their shipper customers by hiking up rates.

I also expect that some savvy entrepreneurs will introduce a few new supply-chain solutions based on the new economies of scale. There might be real value there too, we’ll just have to wait and see. Speaking of potential “real” improvements, wouldn’t it be great if someone could permanently fix the chassis situation at all ports; we can dream can’t we?

Expanding the Panama Canal is going to shake up the world of logistics. Freight volume will increase significantly while transit times should decrease. Shippers who look carefully for various savings opportunities will surely find them. Personally, I’m looking forward to the new Panama Canal opening and the challenges it will bring!

Tony

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