SPECIAL REPORT: THE FUTURE OF FREIGHT
PART I: FREIGHT PATTERNS
An expanded Panama Canal could shift some pacific freight to the east coast. carriers and rail lines are scrambling to meet opportunities. Are you missing the boat?
In August 2014, exactly 100 years after it was first completed, the Panama Canal will celebrate another milestone when a nine-year $5.25 billion expansion project is complete. The widening and deepening of existing channels and a third set of locks will accommodate containerships that deliver two to three times the freight of current vessels.
From a shipping-cost standpoint alone, doubling containership capacity from the current 4,000 20-foot equivalent unit (TEU) to 8,000 TEUs would make it possible for 17 percent more of the U.S. population to reap cost savings from using the Panama Canal rather than porting on the West Coast [Figure 2].
“Shippers get access to more of the population with bigger ships because of the economies of scale – costs per TEU go down, so you can go deeper into the interior United States through East Coast ports compared to West Coast ports,” says Bob West, a principal strategist with WorleyParsons Group. The firm developed a model with Princeton Consultants to calculate the impacts of the expansion [Figure 2].
How much freight actually will be rerouted through the Panama Canal remains to be seen, but shippers and their customers are taking a closer look at the new alternatives to optimize supply chain networks.
“For those retailers and shippers who have a lot of volume and a heavy store base in eastern U.S. markets, the Panama Canal expansion has extra potential for them to cut costs from the supply chain,” says Casey Chroust, executive vice president of the Retail Industry Leaders Association.
The biggest drawback to routing freight through the Panama Canal is time: It can take six to 10 days longer to reach the East Coast via containership from Asia compared to intermodal routes out of West Coast ports. Shipper decisions on which coast to route eastern U.S.-bound freight will depend largely on the types of goods being transported.
Heavy, less time-sensitive containers are ideal for East Coast ports, while time-sensitive and perishable goods containers likely will continue to be delivered to the West Coast.
“Products that allow for longer lead times, such as furniture, non-fashion items, appliances and equipment tend to play well into the [Panama Canal] scenario,” says Chroust. “The Panama Canal will add cycle time, but if your cost-benefit analysis can save a lot of money to outweigh the delay and inventory-carrying costs, and your order lead time can accommodate the extra days, why not?”
Impact on trucking
