Featured Indicator: What the Panama Canal Expansion Means for U.S. Ports

While the ultimate impacts of the Panama Canal expansion are yet to be seen, the project will undoubtedly have major economic ripple effects around the world.

On my recent trip to the Central American nation of Panama, I couldn’t help but notice the level of investment activity occurring in the capital city. Cranes dotted the skyline and the city hummed with construction activity as the world prepares for the imminent opening of the expanded Panama Canal in the coming months. The expansion project—which has been underway since 2007 and has totaled over $5 billion in construction costs—includes the building of a new set of locks to accommodate ships carrying up to 14,000 containers of freight, more than doubling the current capacity of the canal.

For this month’s indicator, we examine data from the U.S. Army Corps of Engineers to identify the fastest-growing import seaports in the U.S., explore how the Panama Canal expansion project is likely to change shipping patterns, and discuss what this means for economic development in the U.S.  

Given that the U.S. is the largest market served by the Panama Canal, the implications of this project for U.S. commerce will be considerable. The trade route between Northeast Asia (i.e. China, Japan, and Korea) and the U.S. East Coast is the largest served by the canal, and thus is likely to be the most affected by the expansion. As the U.S. does not export as much containerized cargo volume to Northeast Asia as it imports, container vessels are more fully loaded on their eastbound trip to the U.S. and carry many empty containers on their return voyage. Thus, container vessel deployment decisions along this trade route are principally based on American demand for imports.[1]

Transportation cost reductions as a result of the canal widening may lead to shifts among the ports through which goods are imported. Currently, many East Coast-bound goods from Asia are imported into the U.S. through West Coast ports and then transported to their final destinations by rail or truck. Soon, these shipments may be routed through the expanded Panama Canal directly to East Coast and Gulf Coast ports, depending on how costs end up penciling out. The larger ships that will soon be practicable as a result of the expansion mean lower transportation costs per unit for East Coast-bound goods. This may shift cargo away from West Coast ports. Compounding matters, recent work stoppages at West Coast ports due to labor negotiations and strikes have already hurt these ports, as the resulting congestion has prompted shippers to seek alternate routes.

To get a sense of recent trends in import activity at U.S. ports, we look at the fastest-growing import seaports between 2013 and 2014 (most recent data years). The chart below shows the top 10 seaports in terms of change in import volume market share, i.e. the share of total U.S. import tonnage. The Port of Beaumont (TX) ranks first on the list, with its share of total U.S. import volume rising by 1.4 percentage point, from 5.7% to 7.1%. The Port of Philadelphia ranks second, with its share of U.S. seaport imports increasing by 1.1 percentage point, from 0.9% to 2.1%.

Seven of the top ten are Gulf Coast ports, and the remaining three are East Coast ports. Notably, no West Coast ports made the list, suggesting that even before the completion of the canal expansion West Coast ports may be losing market share to eastern ports. According to the Journal of Commerce, the Gulf ports continue to undergo a steady rise in share of containerized imports, resulting from population growth, strength in manufacturing sectors, and a desire among cargo owners to diversify their port options in order to avoid delays such as those that have occurred as a result of work stoppages on the West Coast.[2]

Why Is This Important?

The economic development implications of the Panama Canal expansion for the U.S. will depend largely on how ports and inland transportation providers invest in improvements to their infrastructure, the response of shipping companies to such infrastructure development, and the adaptation of supply-chain management methods that take advantage of economies of scale. It remains to be seen how transformational the project will be for supply chain flows and distribution patterns.

Changes in shipping patterns will not occur overnight, but ports have been investing billions to modernize and expand port facilities in hopes of capturing a share of the increased tonnage that will be shipped directly to the East Coast. The American Association of Port Authorities estimates that ports and their private sector partners are investing over $9 billion a year in these endeavors.[3] For example, the Bayonne Bridge Navigational Clearance Project will raise an existing bridge over the Kill Van Kull to allow for the passage of larger ships into the Port of New York and New Jersey. Large-scale dredging activities are underway at the Port of Savannah, and PortMiami has completed a $1-billion tunnel to connect the port to the interstate.[4]

Beyond the ports themselves, the changes in shipping patterns will affect other links in the supply chain, including rail and warehousing distribution centers. Several large freight transportation projects have been recently completed in the Midwest that will facilitate the use of East Coast ports for reaching Midwestern markets. The recently completed Heartland Corridor, for instance, enables more efficient travel along Norfolk Southern rail lines between the Port of Virginia and the Midwest. The project involved increasing tunnel clearances to allow for double-stack intermodal trains, and the development of intermodal facilities.[5] Once the canal expansion is complete, these corridors will likely see increased use over time and lead to further investment in logistics infrastructure.

While the ultimate impacts of the Panama Canal expansion are yet to be seen, the project will undoubtedly have major economic ripple effects around the world. It will certainly be interesting to track how shipping volumes shift among ports in the coming years.

And for some more interesting reading on major (read: pie-in-the-sky) global infrastructure projects that have the potential to shake up shipping patterns, check out this (now-on-hold) Chinese proposal for a Nicaragua Canal and this Russian proposal for a railway/highway connecting Eurasia to North America via a tunnel under the Bering Strait.

For more data on seaports, check out the American Association of Port Authorities.

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