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The Panama Canal Expansion: Time Versus Cost Trade-Off

The Panama Canal expands in 2016, allowing for more and larger (post-Panamax) ships to make the passage from East Asia to the United States. By Jennifer Bratton

In 2015, the Boston Consulting Group and C.H. Robinson evaluated how shippers, carriers, and infrastructure operators will need to respond to the changing logistics environment.

The study concluded that while the West Coast will always be the fastest option for this trade, the East Coast will become a competitive option for many shippers within the battleground region.

Our paper looked at the question of how much traffic the expanded Panama Canal would divert to East Coast ports from a number of angles. We explored how the traffic patterns would have changed between the West and East Coasts if the Panama Canal hadn’t expanded—given economic, energy, and shipping trends that stayed the same—and what might happen under those same conditions, post-expansion.

We also looked at other scenarios: potential shifts in manufacturing to Southeast Asia, some shipping through the Suez Canal rather than the Panama Canal, a weak U.S. dollar, rising energy costs, port and rail overbuilding, and so on. The results showed that market shifts could be as low under these conditions as 0%, and as high as 10%.

In fact, a shift of 10% in market share can fundamentally alter supply chains.

The West Coast ports probably will continue to see more container traffic than they do today because inbound container volume continues to rise. But the East Coast ports—especially the largest ones, New York-New Jersey, Savannah and Charleston, and Norfolk—are most likely to be winners in the battle for market share.

Shippers are other likely beneficiaries of the shift to East Coast ports. Because the larger post-Panamax vessels have lower labor and fuel costs per container than smaller vessels, operating costs of shipping between East Asia and the East Coast could fall by up to 30%. These cost reductions are expected to be passed along to shippers because the industry is competitive and capacity is abundant.

Related: How the Panama Canal Expansion is Redrawing the Logistics Container Map

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