Although the consortium expanding the Panama Canal now makes new claims for cost overruns totaling $737 million, and workers continue to strike and then return to work, the $5.25 billion Panama Canal expansion project is still on track for completion early 2016. As the project gets closer to completion, it puts a renewed focus on necessary U.S. infrastructure as well as the potential impact on supply chains.
The scale of the Panama Canal expansion, which had originally been planned for completion in 2014 but has been pushed back due to delays, is enormous. It will add a significantly deeper and wider third shipping lane and a new system of locks to accommodate massive so-called “post-Panamax” vessels. These cargo ships, which may be as much as two-and-a-half times larger than current ships, will transport goods from Latin America—and more importantly, Asia—directly to East Coast ports and back. Consequently, there will be a change in trade patterns that have been used for more than 100 years in the U.S. The change is expected to have an effect on most industries.
One change is that some private companies are already moving operations to be closer to new U.S. hubs because some estimates say the new trade routes will put shipping companies in reach of nearly two-thirds of the nation’s population, writes Doug Davidson, a global commercial banking market executive for Bank of America Merrill Lynch, in a recent CFO article. For example, Porsche and Kia have both relocated operations to Georgia.
It isn’t just private companies that are making changes. Post-Panamax vessels require at least 50 feet of draft in freshwater harbors and massive cranes to move containers from the ships. Because the ships need deeper harbors, a growing number of ports along the Gulf of Mexico and East Coast are being upgraded to accommodate the larger ships. Projects at numerous East Coast ports are now under way, including deepening projects for harbors, such as those in Miami and Charleston, S.C.
Indeed, a Miami Herald article explains that Port Miami officials have high hopes their port will be the first port of call for post-Panamax ships once the Panama Canal expansion is complete. There is competition, however, from Port Everglades and Jacksonville, which both also have expansion projects underway.
Port Miami is deepening its harbor from 44 feet to 50-52 feet and widening part of its shipping channel, the Herald article reports. As part of its three-prong strategy to boost cargo and improve efficiency, a new port tunnel to speed truck traffic and a rail link to the FCC rail yard near the airport have also been added, the article explains. By the time the dredge is completed next summer, the port’s post-Panamax improvements, which were funded by state, local and federal sources, will have cost about $1.3 billion.
Although there has been criticism concerning the high cost, the equation is simple for Port Miami Director Juan Kurlya, who says “The bigger the ships, the more cargo, the more jobs,” the Herald article reports.
Nonetheless, the upgrades to the ports are just the beginning. The complicated network needed to transport goods first from ship, then perhaps by train or semi-truck to warehouses, stores or other businesses needs to evolve as well. In fact, many of those operations must be overhauled or enhanced to handle the expected increase of goods coming in from the Panama Canal.
At the same time, port cities offer a new path to domestic growth. As Davidson writes in CFO, as the movement of goods shifts from West Coast to East Coast harbors, numerous suppliers of goods and services will also move geographically. That means a shift in location for suppliers of products ranging from concrete to cranes, as well as professional services companies offering everything from IT and staffing services to insurance.
When the Panama Canal expansion project is complete, what changes will be necessary for your company’s supply chain?