Changing Nature of Ocean Traffic After Panama Canal Enlargement
The 2016 Panama Canal expansion added a third set of locks while doubling its shipping capacity. Building new locks was the most efficient method to add throughput. With the physical enlargement came a new transit booking system and a slot auction. Both addressed bottlenecks by shortening wait times at peak seasons.
Traffic was expected to spike, but cargo volumes still surprised on the upside. In its first fiscal year of operation (2017), the number of ships rose 3.3% over the previous year while total tonnage went up 22%. This singlehandedly stemmed from the larger Neopanamax heft of vessels (Neopanamax refers to the “new maximum size of Panama vessels” that can transit).
As expected, the expansion resulted in some diversion of traffic, higher demand for passage, and new investment in ports – primarily on the East Coast – to accommodate larger ships. Months after the opening of the third lane at Panama, the American canal overtook the Suez waterway on the Asia-U.S. East-Coast route. As it stands, for the Panama Canal the most popular route is by far between Asia and the U.S. East Coast (about a third of all traffic), followed by West Coast of South America-U.S. East Coast (about 13%), and the West Coast of South America-Europe (about 7%).
More is to come. Expect push by states and port authorities, primarily on the East Coast, to enlarge harbors that can accommodate larger vessels. Thus, Jacksonville, Miami, Charleston S.C., New Orleans, and New York/New Jersey will see new harbor projects.
Perhaps the greatest potential impact for manufacturing companies will be on trucking capacity. As less cargo gets unloaded on the West Coast to be on-shipped intermodal east of the Mississippi, expect easier access to capacity eastbound. Ditto for rail traffic going in the same direction. We may see softer pricing on these lanes and shorter lead times. At the same time, there might be great demand for short-haul full truckload (TL) and less than truckload (LTL) locally along the eastern seaboard as well as north and north-west from the Gulf. For the same reason, larger ships carrying bulk commodities would now use the canal to ship to Asia. Traffic to the west coast of South America originating from the U.S. east coast could also bulk up.
Another trend likely to emerge is the diversion of inter-American traffic between the coasts in Central and South America through the canal as well as greater use of the canal for Asia-bound cargo from the east coast of South America (Brazil, Argentina).
The canal expansion could not have come at a more opportune time. Economies around the world are firing on all cylinders. As output growth fuels more trade, deployment of larger ships through the canal attenuates lead times and stimulates further development of supply chains. This, in turn, super-charges further division of labor internationally, which then fuels even more trade.
The challenge will be to keep overall investment in transportation infrastructure – from ports, rail terminals, roads, and bridges – humming along. Just as the canal expansion came at the right time, the administration’s infrastructure spending plan now assumes new urgency.