The opportunity for East Coast container ports to gain significant market share from their West Coast counterparts is over and unlikely to appear again, despite their growth expectations tied to the expansion of the Panama Canal, an outspoken supply chain analyst said Friday.
The “perfect storm” for East Coast ports to grab market share occurred roughly 10 years ago, when West Coast ports struggled with labor action that hit a boiling point in the terminal lock out in 2002, said Ted Prince, a principal of T. Prince & Associates and a Journal of Commerce columnist. Other factors that created a window of opportunity for East Coat ports included the Ocean Shipping Reform Act of 1995, which eliminated conferences and implemented confidential pricing, and the operating struggles of Union Pacific Railroad, he said.
The emergency of new technology allowing shippers to better calculate landed costs and environmental pressure that prevented West Coast ports from expanding their infrastructure for the decade also made East Coast gateways more attractive. Moreover, the cascading of the 4,000-TEU vessels, the workhorse ship of the day, to the East Coast gave shippers sending goods through the Panama Canal more capacity.
The opportunity for East Ports was a “one-time phenomenon,” meaning that the $5.25 billion Panama Canal expansion won’t be a game changer, Prince said during a Stifel Nicolaus conference call. Although container lines will gain economies of scale by being able to traverse the expanded canal with larger vessels, shippers won’t see any other supply chain benefits than what they are seeing now from sending cargo through East Coast ports.
Take the pros and cons of shipping a 40-foot high-cube container from Shenzhen, China, via an East Coast port to Columbus, Ohio. The deal is great for the container lines because they would save about $500, largely because they wouldn’t have to pay a western railroad to haul the container. But shippers would be lucky to see cost savings of $100, and their transit time would be extended by eight days to 28 days.
“It’s an insufficient return for most shippers,” Prince said.
The hype about the impact of the expanded canal on East Coast ports is spurring ports from New York to Florida to seek infrastructure improvements needed to handle the larger container vessels. That’s causing “a rush to overcapacity and a huge infrastructure hangover that we are going to be looking at for the next five to 10 years,” Prince said.
What many ports aren't taking into account is that on-dock and near-dock intermodal connections help but don’t guarantee business, as most cargo is discretionary, and Norfolk Southern Railway and CSX Transportation don’t care which maritime gateway it flows through. Additionally, container lines will reduce their ports call when they deploy post-Panamax vessels, leaving some ports out of the loop.
“The rich will get richer and the others will disappear,” he said.
Prince said New York-New Jersey and Savannah are moving forward as the two major East Coast container import gateways. The Port of New York and New Jersey handles 87 percent more containers than Savannah, and the Georgia port has 41 percent more traffic than its nearest rival, the Port of Virginia, according to American Association of Port Authorities statistics quoted by Prince. Private equity investment at the Port of New York and New Jersey has improved operations to the point where it’s cheaper to ship a container through there than through Virginia, a feat once seen as impossible.
Plus, the ports of New York and New Jersey and Savannah are also fueled by major distribution center clusters, allowing them continue to build on their volume growth at the expense of other East Coast ports. The further strengthening of the two gateways will leave “wannabe ports,” including the ports of Norfolk, Miami, Jacksonville and Charleston, “battling for the crumbs.”