Over the past five years, there’s been no maritime cargo industry topic more obsessed over than the impact of the Panama Canal expansion. Countless panels, speeches, articles, blogs, tweets and old-fashioned conversations have poured over the question of how much cargo will shift from the West Coast to the East because ships nearly three times larger than today’s Panamax vessels will be able to pass through a third set of locks when they’re completed in late 2014.
It’s not an abstract question; the answer gets to the fundamentals of where and how much business there will be, affecting everyone from third-party logistics operators to terminals, real estate interests and inland transport providers. Yet some see no greater clarity now than at any time in the past. As one essayist in The Journal of Commerce Annual Review and Outlook put it, “No one knows exactly how it will play out.”
But actually, I think the closer we get to 2014, the clearer the picture will become. In a word, it’s underwhelming.
Driving the discussion is the undeniable fact that, after the expansion, ships capable of carrying up to 12,000 20-foot equivalent container units will be able to transit the canal, versus 4,500 TEUs today. That’s a game-changer, right? But the question is, where will those ships, or even the 8,000-TEU ships more likely to come first, go?
Take Charleston, S.C., and Savannah, Ga., the main U.S. Southeast gateways. Those ports already handle 8,000-TEU ships, and in some cases larger ones, but because of their current depth restrictions, those ships already arrive and leave well short of their maximum capacity, but at or near the maximum capacity they’re able to carry in and out of those ports. So the expanded Panama Canal doesn’t really help those ports or suggest more cargo coming their way as a result of the expansion. Both ports stand ready to handle more cargo, but they would have to see more ships, not just larger ones.
But if the demand existed for more East Coast all-water services, those ships would be coming; the carriers would deploy the tonnage and make the capacity available. And that’s exactly what happens. All-water services expand and contract based on demand — there are 14 of them today — but if the West Coast is poised to lose 25 percent of its cargo to the East Coast, a figure quoted recently in The Los Angeles Times, you’d think such pent-up demand from shippers already would be imposing a lot more upward pressure on carriers to expand all-water services.
What about the rest of the East Coast? Norfolk, Va., correctly calls itself the only East Coast port with unimpeded access for container ships. Thanks to its legacy as a deepwater coal port and proximity to a major Navy base, Norfolk today has the 50 feet of depth able to handle a fully loaded 8,000-TEU ship. And unlike New York-New Jersey, it has no “Bayonne Bridge problem” restricting air draft, and thus the size of vessel it can accommodate.
The problem for Virginia is less its own capabilities but rather those of other ports, such as New York-New Jersey or Charleston, that operators often serve on the same rotations. If Virginia could go its own way and become a sole port of call, this problem would be solved, and carriers could take full advantage of the expanded canal. But given a population base dispersed throughout the mid-Atlantic and a modern inland-rail network that’s still chasing customers rather than the other way around, Virginia isn’t there yet. It essentially has to wait for the other ports to catch up.
A 50-foot project in New York-New Jersey will be complete for its largest container terminals by the end of this year, and the port has set aside $1 billion to raise the Bayonne Bridge. But that will take at least until 2017, five years from now and at least three years after the opening of the expanded canal.
Savannah may be looking at similar timing, hoping to obtain its final Army Corps of Engineers approval to dredge to 48 feet and get shovels in the ground by later this year. But even that scenario means its deeper channel won’t be completed until 2017, and legal challenges could push it back further. Miami and Baltimore are two other contenders, but both are lacking in draft and have other challenges.
This means that when the gun goes off in 2014, the East Coast quite simply won’t be ready. Send big ships through — go ahead and enjoy all the cost and scale advantages you can while the ships are at sea — but at all but one port the vessels will encounter meaningful tide or air draft restrictions, leaving them able to operate in and out of terminals with only about as much cargo as they do today.
For the foreseeable future, in other words, don’t expect to see a major shift in cargo flows.
Peter Tirschwell is senior vice president for strategy at UBM Global Trade. Contact him at firstname.lastname@example.org, and follow him at twitter.com/PeterTirschwell.