Expanded Panama Canal to affect North American logistics flows

The new locks, which created a third lane of traffic for larger neo-Panamax ships more than doubled the capacity of ships transiting the Canal, from about 5,000 TEUs up to around 13,000 TEUs

Panoramic shot of the Historic Bridge of the Americas spanning the Panama Canal

October 25, 2016
by Christian Siviere

The US $5.25bn expanded Panama Canal officially opened on June 26 this year, when the 9,472-TEU Chinese containership Cosco Shipping Panama made the inaugural 11-hour journey from the Atlantic to the Pacific.

The new locks, which created a third lane of traffic for larger neo-Panamax ships, as they are called, more than doubled the capacity of ships transiting the Canal, from about 5,000 TEUs up to around 13,000 TEUs. (The acronym “TEU” stands for “twenty foot equivalent unit” and is the standard for describing the capacity of container ships, terminals and ports.)

The original Panama Canal project was started by France’s Ferdinand de Lesseps in January 1881, following the successful completion of the Suez Canal in 1869. The project faltered and the United States took control, bought it from the French in May 1904 and completed it in 10 years.

The Canal was opened to traffic on August 15th, 1914. It remained a US property until it was ceded to Panama on Dec 31st, 1999. The expansion project of the 102-year-old Canal, overseen and financed by Panama, took nearly 10 years to complete and was carried out by an international consortium led by a Spanish company.

Investing to attract neo-Panamax
To prepare for the opportunities created by the Canal’s expansion, US ports have been investing billions of dollars to expand their facilities, in a race to accommodate the mega ships.

In New York, for example, harbour navigation channels were deepened, and the Bayonne bridge, at the entrance of Newark Bay, is being raised. The project was touted as possibly “the most important and influential project related to modern day economics in the Northeast. Modern-day container ships may now enter the port fully loaded and safely,” said Col. David Caldwell, the Army Corps’ New York District Commander.

“Completion of the harbour deepening project is a major milestone in our efforts to meet the needs of the region’s 23 million consumers now and in the future,” said Port Authority Port Department Director Molly Campbell. “It culminates more than 25 years of work and $6 billion in public and private sector investment to ready the port for the new generation of vessels, and will continue to support the 336,000 jobs and billions in economic activity the port generates.”

x-defaultThe New York project will ensure that area businesses have easier and more affordable access to global markets with the completion of the Panama Canal expansion—and improve the shipping of goods to nearly 100 million American consumers living on the East Coast.

Further south, The Port of Charleston is also deepening its harbour and building new facilities, the port of Savannah is investing in new cranes and an improved rail hub designed to take cargo from Panama transiting ships as far as Chicago.

Of course, other trades will benefit from the expansion as well, not just the container trade. An illustration of that is natural gas exports from the US Gulf Coast to Asia, as demonstrated by the transit of the Shell-chartered LNG (Liquified Natural Gas) carrier MV Maran Gas Apollonia. She sailed from Cheniere Energy’s Sabine Pass Louisiana export terminal in July and transited the expanded Canal, enroute to East Asia. This marked the first US natural gas export cargo ever gone through the Panama Canal.

The Panama Canal expansion was one of the biggest developments in maritime trade in years and it will affect the regional economics in the United States, and indirectly in Canada. The size and frequency of ships coming from Asia (and the West Coast of South America) into the US East Coast and Gulf Coast ports will increase.

Going East
A good share of ocean cargo is expected to shift from West Coast ports (USWC) to East Coast ports (USEC). That’s because the wider Canal will make it cheaper to bring goods from Asia via all-water services to the East and to parts of the Mid-West, via East Coast ports.

This will not only lower shipping costs but also improve the ecological foot-print, as transporting goods by boat over long distances creates less pollution and is more eco-friendly than by rail and truck. It may also entice ocean carriers to introduce more “pendulum” services linking Asia to the East Coast, then across to Europe and back.

The last couple of decades had seen US wholesalers and retailers build more and  more large distribution centres on or near the West Coast, redistributing goods East from there, via truck and rail. The disruptions caused by last year’s West Coast ports labour dispute had enticed traders to open DCs on the East Coast as well, spreading the risks and lessening their dependence on West Coast services.

This benefited areas like Georgia, Virginia and New Jersey. At the same time, ocean carriers began offering more all-water services from Asia to the US East Coast via the expanded Suez Canal and the Mediterranean, again to counter the risks caused by disruptions on the West Coast. The expanded Panama Canal offers yet another alternative and has already taken some market share away from the Suez route.

Feeling it in the core
Bigger ships, more frequencies and more options to serve the East from Asia will also impact the regions around Cincinnati, Cleveland, Columbus, Louisville, Memphis, etc. as these Midwestern and Southern cities are significant regional distribution hubs and their surrounding areas will also be affected.

The larger vessels may not have a direct impact on Canadian ports. They cannot be accommodated at the port of Montréal due to draft restrictions and it would not be economical to make such a detour. They may not travel up to Halifax either, except as part of a “pendulum” service to Europe.

Transloading containers at US ports or Caribbean hubs and feedering them up to Canadian ports may become a new alternative. Other than that, it is likely that containers discharged from these mega-ships at New York or New Jersey ports, for example, would be trucked or railed up to the Québec and Ontario markets.

Just as the centre of gravity of US supply chains may move slightly eastward, after having moved almost all the way west, the same is likely to happen on the Canadian side. This will no doubt affect distribution network design for industrial customers and brick-and-mortar retailers, whereas e-commerce develops slightly differently, being more centered around airfreight capacity enabling next-day deliveries.

Toll revenues from Panama Canal transits stood at $1.994bn in 2015, up 4.4 percent compared to the previous year and are expected to continue to rise, with the increased tonnage accommodated thanks to the expansion. Since the canal first opened in 1914 more than 815,000 vessels have transited the waterway.