Enlarged Panama Canal To Face Tough CompetitionCreated by HButler on 3/11/2011 4:36:27 PM
Container volumes moving through the Panama Canal will certainly increase when the canal is enlarged in 2014, but that does not necessarily mean West Coast ports will lose market share simply because larger vessels from Asia will be able to call at East and Gulf Coast ports.
The all-water container trade from Asia to the East Coast is already one of the largest generators of cargo volume for the Panama Canal, according to Onesimo Sanchez, leader of economic research and intelligence at the canal authority.
Sanchez told a meeting Thursday of the Transportation Research Forum in Long Beach that enlarging the canal so it can accommodate vessels of up to 12,000 20-foot equivalent units capacity is necessary to promote growth because by 2014 post-Panamax vessels will comprise 48 percent of the global container fleet.
The enlarged canal will also result in shorter vessel queues, improved service and more reliable routing of cargo for all-water services from Asia.
Despite offering this value proposition, the canal is not the only player in this game. Cargo interests, shipping lines, ports and railroads will all be part of the process of deciding how U.S. trade with Asia will evolve beginning in 2014.
East and Gulf Coast ports should already be deepening their harbors and expanding landside facilities to prepare for 2014. Importers may be able to negotiate more favorable freight rates as the per-unit cost of shipping a container through the canal drops, but the longer transit time of all-water services compared to intermodal services from West Coast ports may not appeal to importers of high-value, time sensitive shipments.
The Class I railroads will also have a say in how cargo is routed, said Paul Bingham, economics practice leader at the planning and research firm Wilbur Smith Associates.
Eastern railroads are developing double-stack corridors linking the Virginia ports with distribution hubs in Chicago and the Ohio Valley.
However, the western railroads do not intend to relinquish market share to eastern railroads, so they are also expanding their capacity and adding efficiencies to their networks, Bingham noted.
The West Coast's market share of the U.S.-Asia trade fell to 70 percent in 2009 from 80 percent in 2002 due to a devastating longshore labor lockout in 2002, the development of import distribution hubs on the East Coast and a spike in intermodal rail rates from the West Coast in recent years.
However, West Coast ports the past year regained about 2 percent market share as niche carriers started new services to Los Angeles-Long Beach and established carriers deployed increasingly larger ships in their West Coast services.
Also, the BNSF and Union Pacific railroads appear determined to retain market share. The western railroads continue to invest heavily in their networks from the West Coast, and they do not appear to be overly concerned about competition from the Panama Canal, said Sean Strawbridge, managing director of trade relations at the Port of Long Beach. "That indicates to me they have pricing flexibility," he said.
The canal authority itself can influence cargo routing by the level of tolls it imposes at the new facility, Bingham said. If the canal authority prices the tolls to maximize revenue as opposed to maximizing container volume, a shift of market share to the East Coast may not occur, he said.
- Bill Mongelluzzo, The Journal of Commerce.