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Panama Canal Catalyst for U.S. Transportation Sector

As originally published in ISM’s Inside Supply Management

The expanded Panama Canal was unveiled in June 2016, after nearly a decade of construction and a price tag of at least US$5.3 billion. The expansion, which will usher in a new era of neo-Panamax ships, is expected to be the catalyst for increased investment in transportation-related infrastructure. It will also help alleviate congestion at near-capacity West Coast ports and may even raise prices for businesses reliant on transport services.

According to the American Association of Port Authorities, port infrastructure and related projects across the transportation sector are expected to total about $154.8 billion until 2020. This hefty investment has been fueled by the expected diversion of about 10 percent to 25 percent of imports from West Coast ports to Gulf and East Coast ports. Specifically, the Port Authority of New York and New Jersey has invested an estimated $1.3 billion to raise the height of Bayonne Bridge, which would allow larger ships to pass under it. South Carolina and Georgia are teaming up on an estimated $4.5 billion project to build a new container terminal in Jasper County, near the Port of Savannah.

Impact Across Industries

Even the rail industry is getting in on the action. Florida East Coast Railway has collaborated with Port Miami and Port Everglades on about $123 million in infrastructure projects to enhance and restore port connectivity and operability with the railway. The increased port traffic is expected to spur investment in ports and downstream transportation industries.

Previously, Asian imports arrived at West Coast ports and had to go through costly and lengthy trucking, rail and distribution-center transfers. Now, the expanded Panama Canal will allow some of those goods a direct route to Gulf and East Coast ports, significantly reducing transportation time and costs while also bolstering demand and revenue for transport industries in those regions.

West Coast Port Watch

While the long-term effects of the diverted port traffic are not yet known, the diversion is currently expected to slow growth only at West Coast ports. However, many megaships will be unable to fit through even the enlarged Canal. Thus, the diversion of smaller ships will help buy supply management practitioners time to understand how to navigate the increased flow of imported goods from the Asian market at already strained West Coast ports.

While the fiscal impact of the expanded Canal on the US economy remains to be seen, IBISWorld expects that the deep-sea cargo, national trucking and rail cargo transportation services markets will display average annual price growth of 2.5 percent, 3.4 percent and 3.2 percent, respectively, through 2019. While some of that growth will be attributed to an anticipated rise in fuel prices, the expanded Panama Canal is also expected to drive growth by increasing the flow of imported goods from Asia to Gulf and East Coast ports.

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