The expansion of the Panama Canal, which is scheduled for completion in 2014, is affecting the trade community in myriad ways. Of course, the impact means different things to different logistics providers-ocean carriers, ports, and trucking firms, and others.

To sum it up, the expansion project will double the capacity of the canal and allow more and larger ships to transit. In the process, it will allow vessels that traditionally have not been able to travel through and up and down the U.S. Atlantic and Gulf Coasts to do so.

While it might seem odd at this point to restate that obvious point, the reality for shippers, steamship lines, forwarders and supply chain professions is that with a little less than three years to go, much about the impact of that approaching paradigm shift is still very much in the air.

“We all know that there will be an impact associated with the opening of the third set of locks, but that said, there are many, many factors that have nothing to do with the canal that will determine what the impact will be,” says Allen Clifford, executive vice president of the Mediterranean Shipping Company (USA) Inc.

“If anything, this discussion about the Panama Canal opens up an entire avenue of ‘What if’s?’” he continues. “Everything has to work hand-in-hand.”

While the run-up to the opening of the new locks has seen a marked increase of dredging and construction activity at scores of U.S. ports, how effective these measures have been will only be known when the new class of mega, 8,000 TEU to 13,000 TEU ships begin to arrive.

Can the internal structure of the terminals handle the resulting, dramatically larger volumes arriving at their berths? Can the rail serving the specific port handle the extra volume? Can the infrastructure of the roads leading to the terminals, the highways and so forth, handle it?

“People talk about how the Panama Canal expansion will influence decisions by the steamship lines and shippers, but it’s much more complicated than that,” Clifford believes.

“The other part of the equation is ‘Can the terminals handle it?’” he poses. “Can the infrastructure handle it? Do the states have the money to invest in the infrastructure changes? At one time, a few years ago, they had a lot of money, now it’s a different story. Do they have the money to do this? Some of them do and some of them don’t.

“Just because the Panama Canal can handle larger vessels doesn’t mean that every port along where the vessels can go can handle it,” Clifford continues. “Did they order the cranes? Will they be in place to handle it? Did they order enough cranes? Did they do so in a timely fashion? Because you don’t order a crane on Monday and it comes to you on Tuesday. It takes years to build, years to ship, and years to assemble it.

“[The Canal opening] is inconsequential until you can answer the question of whether the port authorities can handle it; whether the stevedores can handle it. So that’s what I call the ‘what if?’ factor, because if you can’t, if one of those little pieces of the puzzle are missing, you’re out of luck.

“Those pieces have all got to work because otherwise, you’re going to have unhappy customers and if you have unhappy customers, you are going to have unhappy steamship lines and it just keeps going down the road,” he says.



More flexibility

Frankie Lau, director of media and regulatory issues for OOCL (USA) Inc., agrees, saying the rail infrastructure around given ports will be a primary determinate of where steamship lines call after 2014.

Highways will be a secondary concern, he adds.

“Obviously, the most preferable attribute for these ports is to have on-dock rail,” says Lau. “Today, most U.S. ports have that, so if you’re one of the few that don’t, you’re definitely at a competitive disadvantage.

“Once you start talking about off-dock rail, you’re talking about another truck move to get the box from the pier, which adds cost and is not environmentally friendly,” he says.

Asked whether he means to say that it would be crazy for a port to build a new terminal without on-dock rail in this day and age, Lau had a one-word response.

“Absolutely,” he says.

From Lau’s perspective, the main thing the widened Panama Canal represents is “flexibility.” Clarifying his point, Lau says greater flexibility applies to both OOCL and its customers, “because when we can deploy larger ships and achieve those economies of scale, then our costs are lower on a per TEU basis, and obviously, we will be able to offer more competitive East Coast-direct rates to the customer.”



New business

Fred Stribling, the former vice president of marketing and sales for the South Carolina State Ports Authority, believes the impending completion of the Panama Canal widening and the recent release of U.S. Census Bureau data showing that Georgia, South Carolina and North Carolina are all among the fastest growing states, will support a continued development of distribution networks through the East Coast port range inclusive of Norfolk, Wilmington, NC, Charleston, Savannah, Jacksonville and Miami.

“The ports are trying to get funding and political support to deepen their harbors to make it appealing for larger, deeper draft ships to call,” Stribling says. “However, most of these ports will continue to benefit if not as a first in or last out call, then as middle port where the draft of the vessel will not be as deep.”

In the meantime, interstate widening projects as well as continuing work on improving intermodal rail connections is moving forward on the East Coast.

However, it should also be noted that West Coast ports and western railroads are not only continuing to invest in capital improvements, but have launched a partnership marketing campaign in the last two years to demonstrate that the West Coast gateway remains viable and will provide a meaningful alternative to the U.S. eastern states and the all-water option.

Meanwhile, the key to the mid-U.S. markets-meaning Chicago, St. Louis, Memphis and even Atlanta-will be the competitive transit times and rates from inland (mostly rail) carriers from the West and East Coast ports to the destination rail ramps,” says Stribling. “The ocean port of entry for these markets will not likely be the primary criteria [for routing decisions].”



A different perspective

On the land side, another factor that will surely shape future trade routes and trade flows is whether or not a region has enough drivers to dray the freight or get it to its ultimate destination.

Some regulatory measures, like the U.S. Department of Homeland Security’s TWIC card program, are seen as having winnowed the number of people who can access a port terminal to pick up a container.

“The advent of TWIC, which required drivers to satisfy the requirements of Homeland Security and the FBI brought a lot of changes in terms of who drives and who doesn’t,” says MSC’s Clifford.

That’s one reason many believe the biggest challenge the shipping sector has going forward is overcoming a perceived shortage in the number of qualified-or willing-truck drivers.

But Clifton Parker, president and general manager of South Carolina-based G&P Trucking, a firm that serves the ports of Charleston, Savannah and Norfolk, takes a different view.

“I would tell you we really don’t have a truck driver shortage, we have a truck driving job problem,” Parker elaborates. “We need, as an industry, to work on improving the truck driving job.

“I hear it said all the time from truck drivers, and even people in manufacturing and construction, that if we could get them home, or give them a predictable schedule where they could spend time with their families, then trucking would be something they’d desire to do,” he continues.

According to Parker, the “job problem” is a by-product of industry deregulation during the 1980s. With it, trucking became a pursuit that required drivers to spend days or weeks on the road at a time, and tremendous amounts of time away from their homes and families.

“Going forward, we have to work to improve these job conditions,” he says.

But, he quickly adds, that won’t be easy.

Over the course of the past few years, he says, more regulations governing the trucking industry have been imposed than during any period he can remember in his total 33 years in the industry.

“In a sense, we have to deal with the job situation that I’ve described at the same time that our industry is being hit with a huge tsunami,” Parker explains.

“Now, thankfully, I’ve never been in a tsunami, but from what I understand, before they strike there’s this huge retraction, where the ocean is sucked back from the shoreline, and then all of a sudden you have a 50-foot wave coming back at you,” he says. “In our industry, the retraction was the Great Recession of 2008, the dramatic collapse in freight volumes that resulted from it, and a dramatic increase in regulations that brought huge changes to our industry.

“The economy is now rebounding and we’re seeing huge capacity constraint problems and large rate increases for shippers-that’s the tsunami coming ashore, and it doesn’t just make things difficult for our industry, it creates inflationary pressures as well,” Parker says.

“And then, of course, the other thing that’s killing us right now is the cost of fuel,” he concludes.

For Parker, whose firm has 524 trucks and annually brings in more than $100 million in revenue, the shifting of trade flows expected to accompany the opening of the new and improved Panama Canal is something of a silver lining on the horizon.

Already, he says, G&P Trucking’s strategic plan calls for growing that revenue to $250 million by 2016.

According to Parker, G&P’s presence in several port communities bodes very well for the company’s being able to capitalize on the wider canal, pointing out that at least one port it already serves-Norfolk-can already handle the large, Post-Panamax ships.

“But geographically, the rule of thumb is that 80 percent of a port’s business is within 350 miles of its berths; that’s why the Port of Charleston absolutely needs to get the harbor deepening project done, so that we can directly benefit from the Panama Canal widening here in South Carolina,” he says.

“I mean, we have an absolutely, geographically wonderful port location, with direct or fast access to the Interstate 26 and 77 corridor, Interstate 95, and Interstates 40 and 85 as well,” he continues. “As a result, you can serve anywhere east of the Mississippi River within 24 hours with a team operation from Charleston.”

In addition, says Parker, Charleston is a perfect place for an importer or exporter to want to do business.

“We’ve just got to get through the red tape and get the funding we need, so that those containers and that work can come to our state,” he says.

But that’s not to say things are stagnant in the South Carolina port drayage market. A weak U.S. dollar has led to an increase in exports from the U.S., something that’s made for a “huge improvement” in the total number of containers passing through Charleston and heading out on the state’s highways.

“Going forward, with the addition of the widened Panama Canal to the mix, I think we might see a total change in the way the supply chain is handled, and it’s going to be interesting to see how the railroads adapt to the larger ships calling on the East Coast,” Parker says.

“Today, you have a lot of ships coming into the Ports of Los Angeles and Long Beach, the cargo being put on trains bound for Memphis, and then either continuing on by rail to Atlanta or Charlotte, or being put on trucks to go to those or other locations,” he says. “So, it’s really going to be interesting to see how the supply chain design adapts to the post-Panamax [vessels] on the East Coast and how many Midwest-based shippers will benefit because of lower logistics prices.”



Ready for change

For is APL, a wholly-owned subsidiary of Singapore-based Neptune Orient Lines, the importance of the Panama Canal widening will really come down to what the shipping line’s clients want and the behavior they demonstrate.

“That’s really what’s going to matter most from my perspective,” says Gene Seroka, APL’s President of the Americas. “Carriers are going to have be out in front to meet the needs of their clients.

“Will there be an increase in activity through the canal after the widening? Sure, we believe that; undoubtedly,” Seroka says. “How much it will increase is really hard to say at this point. Shippers will want to diversify their supply chain, and that means continued reliance on East and West Coast trade routes.”

But like Clifford of MSC, Seroka believes there’s still a great deal of uncertainty among the world’s shipping lines over the land side capabilities of the U.S. East Coast ports.

“In our discussions with our clients, the shippers, first and foremost on everybody’s mind is how critical land side infrastructure will be to the success of the Panama Canal widening,” he says. “In order for a company like ours to deploy services, connectivity points need to be in place so that our ships can berth in a timely fashion and be worked efficiently, provisions for connections from ship to shore need to be in place, and we need to know that we can meet the expectations of our client base.

“With that as a context, I think a lot of work needs to be done around infrastructure. If ports, terminals and railroads can’t handle the volumes from the larger ships on the all-water service, then the effects of the canal widening may be muted,” Seroka cautions.



Rethinking distribution

Mark Michaels, chief commercial officer for Damco North America, a provider of freight forwarding and supply chain management services and part of the A.P. Moller-Maersk Group, reports that he’s deeply engaged in discussions with clients over the Panama Canal widening and the opportunities and challenges that will arise from it beginning in three years’ time.

“Several of our large customers are conducting studies and doing analysis around the impact of the canal,” he offers.

One thing they are looking closely at is expanding their distribution capabilities along the U.S. East Coast.

“Bearing in mind that some of this can be attributed to earlier decisions by shipping lines to dramatically scale back on the IPI points they serve across the continental U.S., I will say that when the wider canal opens, it will force companies to rethink their distribution patterns,” Michaels says.

 “Some of our customers are very interested in locking in space, for instance, along the East Coast for some of those distribution activities,” he explains. “We’ve also started to see companies wanting to find additional capacity on the East Coast because they believe it will make more sense to bring some part of their mix of products closer to consumers and they can afford the extra transit time.

“But, the timing of the movement of goods is still a bit of a question,” Michaels says. “I mean, how much slow steaming will be happening by then? Will carriers offer a faster service to the East Coast via the canal, which would really be competitive to a slow steaming transit via the Ports of Los Angeles and Long Beach and a rail moving across the country? Right now, it’s all hypothetical.”

At present, a very successful part of Damco’s business is cross-docking and transloading-something that has long been a very Southern California-centric kind of business model. In such a regime, containers are brought quickly into Southern California, pushed onto rail through cross-docks and transload centers, and then moved from rail to 53-foot trucks for wider distribution.

“I think companies will be looking for more East Coast options like that,” Michaels says. “We’re very bullish on enhancing and expanding our East Coast capabilities to be able to serve those kinds of customers and their needs.”

While mulling its long term needs on the U.S. East Coast, Damco is receiving considerable input from shipping lines, who have said access to on-dock rail and good road service are vital to their decision making process.

“After all, you need to get the stuff into the port, and then out,” Michaels says. “As a result, these concerns are equally important to your strategic planning process.

“On our side of the business, the supply chain side, we make a general statement that, of course we need the ability to get product out and get it moved,” he continues. “How much of an increase in demand will it put on the East Coast ports, is hard to know. All our ports are congested, so one question is: How much extra congestion will it drive into those ports? How much more productivity can they achieve through productivity improvements? Those are things they will have to deal with.

“We naturally assume the shipping lines are working with the ports and the terminal operators on those plans, so that if a terminal operator has a line that’s brining a 4,000 TEU vessel today and they know the plan is in 2014 that will be an 8,800 TEU vessel, they are making plans to handle that extra volume,” Michaels says.



Contributing writer Dan McCue lives in Charleston, SC, where he writes on global trade, foreign direct investment, and port-related issues.