Will there be a wholesale shift of cargo from the West Coast to the East Coast after the Panama Canal’s third set of locks open in 2014? Probably not.
Larger post-Panamax container ships with capacities of up to 12,500 20-foot equivalent units that will be able to transit the canal after 2014 will have much lower slot costs than the current 4,800-TEU Panamax ships. Carriers should want to lower their slot costs by offering more services from Asia to the U.S. East Coast.
Nevertheless, the opening of the new locks won’t touch off a huge cargo shift away from the West Coast, according to carriers and East Coast port officials, at least not a shift in import cargo.
“Will it affect West Coast ports? Generally speaking, I don’t think so,” Cosco Group Chairman Capt. Wei Jiafu said. “West Coast ports are the nearest ports to Asia, and the sea costs are lower than East Coast ports,” he told The Journal of Commerce’s Trans-Pacific Maritime Conference in Long Beach on March 5.
“The canal expansion may not immediately result in a material shift in cargo volumes that most expect,” said Bob Sappio, managing director of Alvarez & Marsal and a former executive vice president of APL. “When you look back over the last decade or so, much of that shift has already taken place. In 2000, the Asia-to-U.S. import cargo split was about 83 percent West Coast and 17 percent East Coast. Today the cargo split is closer to 70 percent West Coast and 30 percent East Coast.”
The big East Coast ports think the opening of the new Panama Canal locks will generate additional cargo volumes for them, but nothing on the scale of the increases they saw in 2002 when West Coast ports were shut down for 11 days by a lockout of the International Longshore and Warehouse Union.
“We’re going to see a bump up when we are ready to handle bigger ships coming through the Panama Canal, but our growth patterns over the next 10 to 20 years are probably in the range of 4 to 5 percent” annually, Richard Larrabee, port commerce director at the Port of New York and New Jersey, told the TPM gathering.
“Clearly, the economies of scale to the East Coast will be greater,” said Curtis Foltz, executive director of the Georgia Ports Authority. “We think the East Coast will be more competitive, but we haven’t factored in a huge growth purely associated with the new locks.”
In its most recent 10-year plan, the GPA used a forecast of 5 percent annual growth as the basis for its infrastructure planning, but it didn’t forecast any greater growth for the two years after the canal’s expansion, which Foltz said “is yet to be determined.”
Jerry Bridges, executive director of the Virginia Port Authority, said the VPA is forecasting a “conservative” 5 percent annual volume growth for infrastructure planning purposes, which is based on the estimated annual population growth of 5 to 5.7 percent. Bridges said the new locks probably won’t be ready for full operation until 2015.
The biggest volume growth after the new locks come into operation will not come from imports, according to Jim Newsome, president and CEO of the South Carolina Ports Authority. “When we did our strategic planning this year, we were pretty dubious that we would attract cargo for Chicago away from rail line-haul from the West Coast, but we do see a large area east of there in the middle of Tennessee and down where we could attract a lot of freight,” he said.
“But what really excites us is the whole export business,” Newsome added. We see 15 to 17 percent above-market growth in exports because of the Panama Canal expansion, then moderating back to market growth.”