Panama Canal expansion back on track after a small delay

Packnet occasionally posts about the Panama Canal expansion. The reason for our interest is that this expansion could have significant impact on the US export picture as well as domestic shipping and crating.

The project which was started in 2007 and originally scheduled for completion in late 2014 will allow the Panama Canal to handle cargo sizes nearly three times as large as the current capacity while doubling the overall canal capacity. Currently the canal is limited to 5000 container ships, but the expansion will allow passage of 13,000 container ships. See image below

The project was halted in early February 2014 because of disputes arising from major cost overruns. The construction consortium wanted reimbursement for the near 1.6 billion dollar overruns while the Panama Canal Authority felt these overruns were included in the 5.3 billion dollar contract. The dispute stopped progress for nearly three weeks, but the dispute has been resolved and the project work has started up again. The project is currently scheduled for completion in late 2015, but with projects this large, delays and cost overruns are normal. One would not be surprised if the completion date slipped well into 2016.

The wider canals will allow some of the super sized vessels from Asia to deliver to the southern and eastern ports of the US. Currently most imports from Asia are ported to the US West coast. Many logistics experts are expecting the shipping landscape to change significantly when the project is completed. US Gulf ports and East ports would see a much higher load of containers to handle as well as more ships. Many East coast and Gulf coast ports are working on expansion to handle the larger vessels. Not all of the US ports will be immediately ready as a white paper by the Army Corp of Engineers suggests that some East ports will take another decade after the completion before being ready to accept the larger vessels. Norfolk, Charleston and Savanna are projected to be ready for the larger vessels in time for the completion. These ports are also situated to serve the Midwest. West Coast ports such as Los Angeles/ Long Beach could potentially lose traffic as Asian cargo is diverted through the expanded canal to Gulf coast and East coast ports.

US commodity and energy trade could benefit as coal from the East coast could more economically be transported to Asia. Likewise, as the US is becoming a major exporter of oil, the Gulf ports could be replacing the West coast for energy exporting. Grain from the Midwest will find other routes for Asia as Charleston may be used instead of the West coast for transporting grain to the Far East. Not only will Port activity significantly change, but land freight logistics will change as well, as higher import/export traffic at a port will require a more overland traffic to service that port.

The Panama Canal Expansion could result in more competition among US freight entities. This competition may result in cost reductions as ports and freight companies cut costs to try to keep market share. It is possible that the West coast ports and land transport entities reduce costs enough to still make it attractive to port on the West coast.

How much the shipping and transport industry changes because of the expansion is difficult to predict. Competition often creates innovation and so it is not a given that the East Coast will significantly benefit. Also, there are some experts saying that the impact on US ports will be minimal.

There are numerous studies, white papers and editorials about the potential impact of the Panama Canal expansion on the US, some are referenced below.