What Will the Panama Canal Do For Your Supply Chain?

The 48 mile-long international waterway known as the Panama Canal allows ships to pass between the Atlantic Ocean and Pacific Ocean, saving about 8,000 miles from a journey around the southern tip of South America. A project is underway to build new locks as well as wider and deeper channels that is expected to double the canal’s capacity. This will allow megaships to move through the Canal. What will be the impact on your supply chain?

Although the French had attempted construction of a canal in the 1880s, the Panama Canal was successfully built from 1904 to 1914. The division of the country of Panama into two parts by the U.S. territory of the Canal Zone caused tension throughout the twentieth century. In 1977, a treaty agreed to return 60% of the Canal Zone to Panama in 1979 and the reminder in 1999. Though traffic continues to increase through the canal, many oil supertankers, huge container ships and aircraft carriers can not fit through the canal. There’s even a class of ships known as “Panamax,” those built to the maximum capacity of the Panama canal and its locks. the Panama Canal expansion project will allow ships double the size of current Panamax (“Post-Panamax”) to pass through the canal, dramatically increasing the amount of goods that can pass through the canal.

The expansion project is a little off target and will not be completed until April 2015. What does this expansion mean? The Panama Canal will then accommodate post-Panamax vessels that carry 12,600 containers, compared to today’s ships carrying 4,500 containers. But now the Panama Canal is also losing business. Maersk Line, the world’s biggest container shipping company, will stop using the Panama Canal to move goods from Asia to the U.S. East Coast. Instead, Maersk Line will begin sending vessels through the Suez Canal, which can accommodate ships carrying as many as 9,000 20-foot boxes at a time, instead of using two 4,500-box-vessels through Panama Canal

Shipping containers through the Canal on these larger ships could reduce costs by as much as $75 to $100 per container per voyage, which adds up quickly! When such ships are able to pass through the Panama Canal, business will consequently pick up along both the U.S. Eastern and Gulf coast ports because the ships can take an “all-water” route from Asia to the U.S. East or Gulf coast—bypassing West coast ports and the roads and railways now used to transport goods across the U.S. However, these ships require depths of up to 50 feet of water to navigate. As a result, port authorities along the U.S. Eastern seaboard and Gulf coast are spending hundreds of millions of dollars to dredge the bottoms of their bays and river bottoms to deepen harbors to accommodate the larger ships.

The major Atlantic container ports are New York/New Jersey, Virginia, Savannah, and Charleston. Containerships and containerized cargo comprise the bulk of vessel calls and most of the vessel value at these seaports along the eastern seaboard.

There are concerns regarding whether U.S. West coast port operators will see a drop in volume. Those in the LA/Long Beach port complex worry that many importers will bypass their ports with ships coming from Asia, and will head through the Canal directly to East coast or Gulf coast ports instead. The majority of in-bound Asian shipments currently go to LA/Long Beach, and then moved by rail and sometimes truck to the Midwest and East coast. However, there would be a significant cost savings to the shipper if they could ship directly to a Gulf coast or Eastern port and eliminate the additional cost of transporting goods by railway. That’s not to imply, however, that the West coast’s loss is the East coast’s gain. The problem on the East coast is that the ports simply aren’t deep enough to accommodate the post-Panamax ships. Consequently, seaports up and down the Atlantic coast are racing to dig deeper harbors. Currently Norfolk, Va. is the only East coast seaport with the required depth of 50 feet. Other port authorities (including New York, Charleston, S.C., and Miami) are scrambling for federal permits and hundreds of millions of taxpayer dollars to dredge the bottoms of their bays and river bottoms to deepen harbors.

Progressive Railroading has been covering the East Coast ports plus the connecting railroads. As the $5.25 billion Panama Canal expansion nears its 2015 completion to allow supersize, Post-Panamax cargo ships to pass through on their way to markets farther north, eastern U.S. ports and a number of railroads are gearing up for an anticipated increase in international intermodal traffic in the coming years. East and Gulf Coast port authorities are developing and deepening their harbors in preparation for the influx of giant ships, and eastern railroads are building or expanding on-dock rail facilities, building intermodal centers or advancing other plans to accommodate an expected increase in freight traffic.

Among railroads anticipating a bump in intermodal traffic after the bigger canal opens is Florida East Coast Railway L.L.C. (FEC), the only rail provider to south Florida’s ports. Based in Jacksonville, Fla., the 351-mile regional is working with PortMiami and Port Everglades to build on-dock rail facilities as part of their expansion programs, which FEC execs view as a big part of the railroad’s strategy to grow intermodal traffic. “By summer 2014, we’ll have the on-dock rail facility fully operational, which means that from PortMiami we can hit 70 percent of the American population in a matter of days,” says PortMiami Director Bill Johnson. “It will allow us to double stack containers directly to Jacksonville in under nine hours, and connect to Norfolk Southern Railway (NS) and CSX directly to the heartland of America.”

Railroad giant CSX’s infrastructure preparation includes the National Gateway initiative to create a more efficient double-stack route between mid-Atlantic ports and the Midwest markets. And a cornerstone of the double-stack corridor is their Northwest Ohio Terminal near North Baltimore, Ohio.

A major undertaking is the Port Authority of New York and New Jersey (PANYNJ) Bayonne Bridge project to raise the structure’s navigational clearance from 151 feet to 215 feet — enough to accommodate the larger ships.

Norfolk Southern’s program includes the Heartland Corridor project, a $200 million public-private venture among NS, federal and state governments to enable double-stack international freight capabilities by increasing clearances through some 30 tunnels between Hampton Roads, Va., and the Midwest.

Jim Fulcher’s blog on the Supply Chain Community discussed many aspects of expanding the Panama Canal, from the actual expansion project itself, to larger supply chain concerns, such as evaluating port performance and the connectivity of ports in Central America, and working to determine what impact use of larger ships and more water routes will have on reducing companies’ carbon dioxide footprint. There also are significant concerns regarding whether U.S. West coast port operators will see a drop in volume, and if East coast seaports will be able to deepen their ports sufficiently to accommodate the larger ships.

He brings up an article that ran in AirCargoWorld, which explains that, according to recent analysis by commercial real estate firm Colliers International, an expanded Panama Canal will result in a smaller number of North American air cargo centers. Colliers’ report, “CapEx or Capsize,” states air cargo’s role in global trade will be defined by the tug-of-war between energy/infrastructure costs and e-commerce growth in the first post-Panamax decade (2015-2025).