US East Coast ports set to benefit from Panama Canal expansion

The $5bn expansion will permanently alter the competitive balance between the ports of the US East and West coasts, the research pointed out. With global container flows rising, West Coast ports will still handle more traffic than they do today, but they will experience lower growth rates and their market share will likely fall.

Goods shipped from East Asia through West Coast ports are currently transported by rail and truck as far east as the Ohio River Valley. The canal’s expansion will allow big post-panamax containerships to reach the East Coast.

Those East Coast ports will then become more cost competitive because it is cheaper to move cargo by water than over land. West Coast ports, however, will remain the destination of choice for shippers who need to use the fastest routes possible.

“With the Panama Canal’s expansion, shippers will have more options and carriers will compete to provide those options,” said Peter Ulrich, a BCG partner and the leader of the firm’s transportation and logistics topic area in North America.

In 2014, about 35% of the container traffic from East Asia to the US arrived at East Coast ports. The research said that current growth trends would push that share to 40% by 2020 without the canal’s expansion.

But with the canal expansion in place, the East Coast’s share could reach 50% - a 10% increase in market share.

Additional scenarios were also analysed by the report to look at the container traffic swing from West Coast to East Coast ports. The different conditions include energy prices, canal tolls, infrastructure investments, and economic growth.

Under any scenario, however, all major US ports will have greater container traffic in 2020 compared to today. But the largest of the West Coast ports, the Los Angeles-Long Beach complex, will handle less traffic than if the expansion were not to occur.

That complex will likely see growth at an average rate of 5-10% per year through 2020, compared to double-digit growth rates at some East Coast ports.

On the East Coast, the New York-New Jersey port complex and the southeastern ports of Norfolk, Savannah and Charleston are well positioned to gain traffic by virtue of their relative proximity to the battleground region and rail routes to the major markets.

As the East Coast’s largest ports, they are also likely to be on the routes of the post-panamax vessels, which tend to make fewer, longer stops than smaller vessels.