Larger Panama Canal no guarantee of more Asian cargo for eastern US ports

Bill Mongelluzzo, Senior Editor | Sep 16, 2016 6:41PM EDT

The larger locks of the Panama Canal, pictured, tripled the size of cargo ships able to pass though the waterway.

CHARLESTON, South Carolina — Shipper and carrier executives agree that the enlarged Panama Canal will enhance the competitiveness of East Coast ports in their battle for market share with West Coast ports, but supply-chain fundamentals such as price and the ability of ports to handle today’s mega-ships will ultimately determine cargo routing in the Asia-US trade.

“Cost, consistency and capacity will determine the gateways through which Asian imports enter the US,” Rick Gabrielson, vice president of transportation at Lowe’s, told the South Carolina International Trade Conference Tuesday.

Gabrielson said much of the diversion of Asian imports from the West Coast already took place over the past decade as retailers and other beneficial cargo owners established import distribution centers along the East Coast from New Jersey to Georgia. “I don’t see a significant shift from the West Coast to the East Coast,” he said.

East Coast ports were enthused, with good reason, when the Panama Canal Authority in late June opened the third set of locks that will allow vessels with capacities up to 14,200 twenty-foot-equivalent units to transit the canal. Right off the bat, all-water services have been registering a dramatic decrease in per-unit carrying costs compared to the previous limitation of 5,000-TEU vessels through the original locks.

Oscar Bazan, executive vice president, planning and business development at the Panama Canal Authority, said global ocean carriers responded immediately by deploying seven weekly services from Asia, featuring 70 vessels with an average capacity of 8,200 TEUs. The largest container ship on the all-water services so far has been a 10,100-TEU ship, Bazan said.

The initial competition for US business has not been West Coast vs East Coast, but rather with the Suez Canal route from Asia. He noted that two Suez services shifted to the Panama Canal routing. In addition to being a shorter distance to the East Coast from important load centers in Asia, the Panama Canal route is considered more efficient, with fewer intermediary stops, than the Suez route.

For Asian imports destined for the Eastern seaboard and close-in destinations, routing cargo via all-water services are a no-brainer, certainly for low and mid-value shipments where transit time is not a critical factor. Although ocean transit from major Chinese ports to the East Coast is a week to 10-days longer via the Panama Canal than by intermodal shipment through Los Angeles-Long Beach, the combined ocean-intermodal rail all-in cost through the West Coast is about $1,000 per 40-foot container more, according to port sources on both coasts.

Gabrielson stressed that each BCO’s set of requirements is unique, with some combination of cost and transit time being important components of the routing decision. However, for all BCOs, regardless of size, reliability of service and a general lack of disruptions in the supply chain are crucial in choosing which route to take to destinations in the eastern half of the country.

West Coast ports took a hit in late 2014 to early 2015 during the coastwide contract negotiations between the International Longshore and Warehouse Union and the Pacific Maritime Association. The work slowdowns, employer retaliation and subsequent port congestion on the West Coast resulted in a noticeable shift of cargo to East Coast ports, which registered double-digit growth in container volume much of last year. The unreliability factor was further enforced by the fact that this was the second contract negotiation disruption since 2002.

Nevertheless, the trade has apparently reset, with imports from all origin points through West Coast ports increasing 3.2 percent in the first half of 2016, according to the PMA. Imports through the East Coast increased 1.5 percent, according to PIERS, a sister product of JOC.com within IHS Markit.

Ports on both coasts face the challenge of providing sufficient marine terminal and infrastructure capacity and efficient cargo-handling processes to manage the cargo surges from today’s mega-ships. Los Angeles-Long Beach, which has been handling vessels of 8,000 TEUs and greater for almost a decade now, in 2015 averaged 7,767 container moves per vessel call, according to the Long Beach air emissions inventory released last month.

Vessels calling in Los Angeles-Long Beach discharge and reload at least 80 percent of their contents in Southern California, with the only other stop being in Oakland before the vessel returns to Asia. Those cargo surges are becoming more problematic now that 10,000 to 14,000-TEU ships are common in Pacific Southwest services. Average container moves per vessel call can reach 13,000, with several vessels discharging and reloading those volumes in a single week.

On the East Coast, New York-New Jersey is the primary load center. Vessel rotations to the East Coast normally run New York-New Jersey, Norfolk and Savannah-Charleston. The general port share for all-water services calling north to south are New York-New Jersey 60 percent, Norfolk 25 percent and Charleston or Savannah 15 percent, John Wheeler, vice president of carrier sales at the South Carolina Ports Authority, said. As the vessel sizes double in the years ahead to more than 20,000-TEU capacity, container surges from each vessel call will likewise double.

Mike White, president of Maersk Line North America, expressed optimism that ports on both coasts will adjust to the new level of cargo surges through improved cargo-handling processes, extended gate hours and investments in larger, more efficient cranes.

White therefore predicted there will be “no dramatic shift” from West Coast to East Coast following the Panama Canal expansion, but rather a new set of challenges in efficiently handling the mega-ships so that each coast will retain its market share.