The Panama Canal expansion that began in 2007 was finally completed on June 26, 2016. The expansion could lead to slower growth at West Coast ports and extended competition on the East Coast, with inland ports becoming more cost-effective options.
To find out what this means for the trucking industry, we asked logistics expert Steve Raetz, director of research and market intelligence at C.H. Robinson company, a provider of multimodal transportation services and third-party logistics based outside Minneapolis.
Q: Will West Coast trucking operations see a significant drop in volume now that the expansion is complete?
A: There won’t be any major turmoil, no loss of jobs or anything like that. And the West Coast ports and railroad companies are trying to dissuade any shifting of volume by building more capable infrastructures.
Up to 10 percent more cargo from Asia may go to East Coast ports. But West Coast ports will still see growth, although at a slower rate than before. The Los Angeles-Long Beach port area may see annual growth at an average rate of 5 to 10 percent through 2020, compared to expected double-digit growth out East. With its strong local market, Oakland may not see much of a change; likewise for Seattle-Tacoma, thanks to its unique positioning for managing Pacific Northwest traffic.
Q: What goods are most likely to be affected?
A: Those that do not depend on speed of delivery. When speed counts, trucks and rail will still be used.
A shipper moving goods through the Panama Canal to New York-New Jersey for shipment to Columbus, Ohio could save 4 percent compared to routing the same goods through Oakland. But the move could also take up to 11 days longer to complete. In addition to transportation cost and transit service, we recommend that importers also study inventory costs and product obsolescence when they consider shifting from a West Coast to East Coast entry strategy.
Q: What is the likely impact for East Coast trucking companies?
A: Firms on the East Coast may be competitive 200 to 300 miles farther west than now. Prior to the Panama Canal expansion, it cost about the same amount to ship an item to Columbus, Ohio from either the East or West Coast. Post-expansion that cost balance will move west to cities such as Chicago and Memphis.
Q: What other factors will drive impact of the overall expansion?
A: The Suez Canal is also expanding its capacity. With the drift of production to Southeast Asia, that route becomes increasingly attractive and a more frequent competitor to the Panama Canal for East Coast entry.
Q: How should independent trucking firms react?
A: The good news is that changes are going to come gradually. That should give companies ample time to assess the situation’s potential impacts on them and create a plan of action. The U.S. trucking market is very fragmented and tends to invest and shift assets to where the demand is. It seems reasonable to assume that this shift will be similar to other demand shifts that have occurred in the past.