The New Economics – Widening of the Panama Canal

 In Insight

Catastrophic disruption of the supply chain

The recent West coast port shutdown/slowdown provided a wake-up call to many marketers. This catastrophic disruption of the supply chain resulted in additional costs, lost profits and lost opportunities as buyers bought other products (or didn’t buy at all). All left marketers holding the bag. The interest in migrating to Eastern ports has never been greater, which subsequently has invigorated attention to the nearly completed expansion of the Panama Canal.

Eastern ports have been growing at a fast clip as the US population continues to increase, with the vast majority of the population in the East. Many marketers have realized the benefits of landing goods closer to the population, namely with faster and cheaper delivery to customers due to the proximity that an eastern location brings. So what does the expansion of the canal bring to the table?

What Is the Purpose of the Panama Canal Expansion?

It’s all about economies of scale. Ships are getting bigger. So big in fact, that today’s largest class of container vessels, known as Panamax New, are too big to navigate through the canal and even to some ports. The ability to accommodate these larger vessels is the reason for the expansion of the Canal (the lengthening, widening and deepening to be precise) and port expansions, such as the deepening of the channel in Savannah to 47′, as an example. Bigger ships hold more containers. More containers per ship increase the efficiency and this efficiency equates to lower costs for shippers.

For example, the largest ship that can navigate through the Panama Canal today is 965′ long, 106′ wide and 41.2′ deep. These vessels hold approximately 5000 TEU’s (20′ Container Total-Equivalent Units). Once the widening of the canal is complete, Panamax New class vessels that hold 13000 TEU’s will be able to pass through. Those dimensions are 1401′ long, 180′ wide and 60′ deep. That’s an increase of 140% per vessel. Some estimate that approximately 30% of current West coast port activity will shift to the East coast.

How Panama Canal Expansion Will Affect U.S. Shipping Sector

Whatever the actual figure, this phenomenon will bring profound changes to, and create significant opportunities for marketers. Benefits include:

  • Shippers will have a lot more options. The US has excellent ports all along the Eastern Seaboard, from Miami to Savannah to Boston. Instead of just blindly routing goods through west coast ports, shippers that do more analysis will have many new choices.
  • With these new options come additional choices for warehousing and distribution. In some cases, this could mean lower real estate and labor costs. It also means additional states competing for business and offering tax incentives, Freeport (inventory tax exemptions) and Foreign Trade Zones.
  • We can now eliminate (or greatly restructure) the cross-country shipment of goods via truck and rail. The trucking industry is facing a shortage of drivers, more safety regulations, and increased highway congestion. All affect costs and productivity. By positioning goods closer to consumers, shipping costs and delivery times are reduced because there are fewer zones to traverse.

Who Wins?

We believe the largest impact will be on retail shipments. It will not make sense for retailers to rely on west coast ports for everything. Port congestion, historical labor, California taxes, high cost and time for trans-continental shipments make this an easy target.

Direct to consumer shipments from east coast locations logically will follow the B2B changes. Savvy marketers will see the opportunity sooner and begin making adjustments now. The Panama Canal widening simply will expand the possibilities.

Marketers and shippers should use this opportunity to restructure their thinking and practices to take advantage of the coming opportunities.

Continue to read more about shipping logistic and how fulfillment location makes a difference, here.

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