Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

An Expanded Panama Canal Takes Logistics into Uncharted Waters

An Expanded Panama Canal Takes Logistics into Uncharted Waters.Connect

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Editor’s note: This post originally ran in February. Since the Panama Canal opened this past Sunday, we wanted to share it with you again.

In December, the Port of Los Angeles handled the largest container ship ever to call at a North American port. The arrival of the Benjamin Franklin offers a glimpse of a major change in supply chain management in 2016.

The enlargement of the Panama Canal was recently completed, enabling mammoth-sized container vessels to transit the waterway. These big ships are expected to alter the distribution of cargo between U.S. East and West Coast ports. How much of a shift, and the logistics implications, are the subject of much debate.

As the Wall Street Journal [1] reported, Los Angeles port prepared for the docking of the Benjamin Franklin. The ship has a capacity of nearly 18,000 twenty-foot equivalent units (TEUs), and in anticipation of the surge in cargo, trucking companies were alerted and rail cars were positioned well ahead of the vessel’s arrival.

But the strain on port handling capacity is only one of the challenges raised by the new generation of mega-size container vessels.

A much broader challenge is how these ships will change the cost of shipping cargo from East Asia to the United States and the competitiveness of U.S. East versus West Coast ports.

A white paper titled Wide Open: How the Panama Canal Expansion is Redrawing the Logistics Map, published by the Boston Consulting Group and C. H. Robinson, estimates that as much as 10 percent of container traffic between East Asia and the United States should shift from West Coast to East Coast facilities by the year 2020.

The $5 billion project to expand the Panama Canal “promises to reorient the landscape of the logistics industry and alter the decision-making calculus of the shippers that the canal serves,” says the white paper.

That calculus is complicated, because there is no single answer to the question of how much traffic will switch to the U.S. East Coast.

Two what-if scenarios created by the white paper illustrate the point.

Both scenarios assume that economic and shipping trends remain steady through 2020. In the first one there is no canal expansion, and the East Coast’s share of East Asia container traffic increases from 35 percent to 40 percent based on current growth projections. The second scenario assumes that the canal is expanded, and the East Coast’s share rises to 50 percent. However, even in the latter scenario, the West Coast still receives more traffic from East Asia up to 2020 because inbound container volumes are rising.

The white paper posits four additional scenarios to consider. Also, it points out that several other factors could alter the flow of traffic through the enlarged Panama Canal, such as the building of a canal through Nicaragua and the emergence of new transshipment options.

Trying to navigate a route through these possible changes might seem daunting, but it’s important that shippers and carriers confront the choices that an enlarged Panama Canal brings.
As the white paper argues, for most logistics players “analyze and act” makes much more sense than “wait and see.”

[1] Giant Container Ship Unloads at Port of Los Angeles, Erica A Phillips, Wall Street Journal, December 30, 2015

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