Although the expanded Panama Canal has been briefly tested, the official opening took place last Sunday, when the neo-Panamax Chinese vessel COSCO Shipping Panama passed through the canal’s new Atlantic-facing Agua Clara Locks. Originally named Andronikos, the vessel—bearing 9,472 containers—was renamed to “honor and pay respect” to the country of Panama and the Canal.
The nine-year, $5.4 billion expansion of the 48-mile canal more than doubles its cargo capacity. The canal’s new locks are wider than the old ones, 180 feet vs. 110 feet, and are deeper as well, 60 feet vs. 42 feet. A third lane has been added to the canal that accommodates ships large enough to carry up to 14,000 containers, compared with around 5,000 currently. This alleviates a cargo bottleneck caused by the smaller ships that was expected to worsen over time.
Canal authorities say expansion of the canal, which handles about a third of Asia-to-Americas trade, was necessary for the canal to remain competitive. As the shipping industry copes with a downturn, major shipping companies are pooling their resources and using fewer but much larger ships, which are too large to fit through the pre-expansion Panama Canal.
The expansion makes the Panama Canal more competitive with the Suez Canal in Egypt by shortening the one-way journey by sea from Asia to the U.S. East Coast by roughly five days and eliminating the need for a trip around Cape Horn to get to the Atlantic. Consequently, it’s expected that roughly 10 percent of the Asia-to-U.S. container traffic will shift from West Coast ports to East Coast terminals by 2020, according to a recent report by business adviser Boston Consulting Group and supply-chain management provider C.H. Robinson Worldwide Inc. So far, 170 neo-Panamax ships that wouldn’t have fit through the pre-expansion canal have booked reservations to pass through the expanded locks.
“We knew that if we did not embark on this project, the quality and span of our services ran the risk of deteriorating, impacting shippers, customers and our country alike,” the Panama Canal Authority’s chief executive, Jorge Quijano, said in a speech Saturday night. “The expansion will open new trade routes.”
What remains to be seen, of course, is how East Coast ports continue to respond. The American Association of Port Authorities says close to $155 billion will be invested by 2020 to expand U.S. ports and add necessary infrastructure to handle bigger ships.
The problem, however, is that while some East Coast ports—Baltimore, Miami and Norfolk, Va.—are ready to accommodate much bigger ships, others aren’t. Dredging projects are still under way at the ports of Savannah, Ga., and Charleston, S.C., and the tidal channel on the Savannah River has only received approval to be deepened to 47 feet—not the 50 feet required for the neo-Panamax ships. What’s more, some of the ports lack infrastructure such as cranes and docking space to handle the ships. At the port of New York and New Jersey, for example, the three largest terminals are walled off to the largest container ships by the Bayonne Bridge, which the local port authority is raising by more than 60 feet at a cost of more than $1.3 billion.
Then again, the ability to accommodate larger ships doesn’t necessarily mean they will come to port. Indeed, it’s a common mistake to think that if you build up a port, traffic will come, says Asaf Ashar, a port infrastructure expert and professor emeritus at the University of New Orleans, in a recent Wall Street Journal article.
“It’s not like suddenly we lift the bridge and people will buy more tennis shoes,” Ashar says.
What are your thoughts about the impact the expanded Panama Canal will have on the supply chain? Do you think there will be a significant shift in port traffic from West Coast ports to those on the East Coast?