Study: Time to prepare for Panama Canal expansion boom is now

The Atlantic Ocean is tapped to fill the flood chambers that will provide water to the new set of locks in the Panama Canal. Expansion of the famous manmade waterway is expected to bring more imports from Asia to East Coast ports like the one in Charleston.

Expansion of the Panama Canal will kick off unprecedented growth at East Coast ports, including the Port of Charleston. But until now, the extent of that growth has been hard to quantify.

Think about nearly doubling the number of full cargo containers that currently cross the Charleston waterfront each year and you have a good idea of what’s to come, an analysis by the Boston Consulting Group has found.

That’s more than 1 million additional cargo boxes going from East Asia to East Coast ports by 2020, according to the company’s “Wide Open: How the Panama Canal is Redrawing the Logistics Map.”

The expansion, scheduled for completion next year, “will permanently alter the competitive balance between ports on the East and West coasts,” the report states.

That’s because cargo that’s expensive to move but not time-sensitive will travel more frequently through Panama than unload on the West Coast.

It is less expensive for shippers to move that type of cargo by water than by truck or rail, and the larger ships that will be able to navigate an expanded canal — carrying up to 14,000 cargo boxes at a time — increase those cost savings.

So, if a Chinese-made couch is destined for a furniture warehouse in Charlotte, shippers will save money by taking an extra two weeks to bring that cargo to Charleston and then move it a shorter distance by rail than dropping it off in Los Angeles for a cross-country train ride.

The trend will “shape the investment and routing decisions of rail and truck carriers, magnify the trade-offs that shippers make between the cost and the speed of transportation, and potentially alter the location of distribution centers,” according to the study.

“That’s been my mantra for years,” Jim Newsome, CEO of the State Ports Authority, said of the coming Asian import shift to the East Coast. “I’ve always felt that when the Panama Canal was widened, it would bring another incremental growth in cargo to the East Coast.”

Handling those bigger ships and increased cargo are primary reasons the SPA is pushing to deepen Charleston Harbor to 52 feet ASAP. It’s also a key driver behind construction of a new cargo terminal at the former Navy base in North Charleston. Both projects — expected to cost about $1.2 billion combined — are scheduled for completion by the end of this decade, about the same time Boston Consulting Group says the big shift in Asian imports will begin.

“We have planned our capacity for the next 20 years well, and that’s what the Navy base is about,” Newsome said, adding that while Charleston’s terminals will be able to handle ships with 14,000 cargo boxes, he expects those with about 8,000 cargo containers will be the norm.

In addition to lowering costs for shippers, the expanded canal will open new distribution markets for East Coast ports, the study says.

There is a large swath of the Midwest — markets such as Chicago, Detroit and Memphis — that gets its Asian cargo from West Coast ports because it currently is more cost-efficient to move it there by rail. That will change when non-time-sensitive cargo is re-routed to East Coast ports. By 2020, it will be cheaper to send that cargo to the East Coast and then put it on a train or truck for the rest of its journey to a distribution center.

“The battleground on which U.S. ports compete with one another will move several hundred miles west,” according to the study. “The ports best-suited to win new traffic will be those closest to the battleground region and that have the best and least-congested rail and trucking routes for getting there.”

The Port of Charleston has one of the East Coast’s fastest turn times — the time it takes a truck to load or drop off a container from the time it enters the gate — at about 40 minutes. Savannah also has a turn time of less than an hour. That compares to more congested cargo ports in New York-New Jersey and Norfolk, Va., where turn times can stretch for hours.

The SPA’s inland port, a train-to-truck hub in Greer that connects to the Port of Charleston via two railroads, is 500 miles from nearly one-third of the nation’s consumers.

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

“Rail, truck and ocean carriers will all have to reconsider their routing and investment decisions,” Ulrich said. “And shippers will need to make fundamental choices, such as where to locate distribution centers and how to segregate their cargo heading for the heartland.”

There are economic and other variables that could alter the Asian import forecast. For example, a weak national recovery or overbuilding of capacity would have a negative impact on East Coast ports.

“The question for East Coast ports is whether they will gain sufficient traffic to justify their investments,” the report states. In addition to the SPA’s plans, Savannah is spending $1.4 billion and the Port of Miami is investing $2 billion more in infrastructure improvements.

One variable that’s already taking place — the shift of manufacturing to the Southeast — stands to help ports like those in Charleston and Savannah. Manufacturing jobs, like those created by Boeing’s 787 campus in North Charleston and the planned Volvo and Daimler auto plants, create more demand, moving more container traffic through the Panama Canal.

While widening the canal underscores the growing complexity of logistics, the study’s authors say those who wait until the Asian import trend begins will have waited too long.

“Shippers and carriers need to confront that complexity in their strategies and operations,” the report states. “For most players, ‘analyze and act’ makes a lot more sense than ‘wait and see.’”

Reach David Wren at 937-5550 or on Twitter at @David_Wren_