Currently, large cargo ships are too wide, deep and tall to maneuver through the Panama Canal. However, the Panama Canal expansion project currently underway will double capacity by allowing more and larger ships to transit.
As we prepare for the opening of the expanded Canal sometime near the end in 2014 or early 2015, there is concern that the project will result in a reduced volume of imports arriving through Southern California. After all, 47% of all U.S. imports and 70% of imports from Asia come through the Ports of LA and Long Beach. These ports, together with supporting service providers, account for one out of every eight jobs in the region.
Many people (particularly representatives of ports east of the canal) have suggested that a significant percent of this import freight would shift to Gulf Coast or East Coast ports, closer to populated markets in the eastern U.S. We don’t agree, even in the wake of the recent 8-day strike by port clerks here in Southern California. Here are three reasons why:
1. Increased time to market will require more inventory and drive up supply chain costs. Time on the water could increase two weeks or more.
2. Gulf Coast and East Coast ports are playing catch-up, and will be for some time. Southern California has the most developed infrastructure to support large volumes of import freight.
3. Shifting cargo to ports with a “developing” capability involves risk, and companies don’t like risk. Will an increased volume of freight flow smoothly through the Canal? How will rising costs for fuel, for Canal use, and for ocean carriers impact total costs? Will the need to increase inventory result in higher write-offs in the event of a business downturn?
Read more in our Weber Insight: