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What Shippers & Carriers Should Consider with Panama Canal Expansion

What Shippers & Carriers Should Consider with Panama Canal Expansion | Transportfolio

Panama_Canal_Expansion's_impact_on_U.S._logistics

The Panama Canal expansion opened in June 2016 and will impact the U.S. logistics landscape for years to come. Shippers, carriers, and logistics service providers need to make decisions about how to best serve their customers in a changing business environment. All modes of shipping – ocean, intermodal/rail, and over the road – will be impacted. Shippers in Columbus, OH, will be in the battleground region of the United States, with ports on the East and West Coasts vying for their business.

If costs were all that mattered, these shippers would route their products through the expanded Panama Canal to reach Columbus via rail from the New York-New Jersey port. While the rates would be about 4% cheaper to go this route rather than through Oakland, it would also take 11 days longer. And, as every shipper knows, there are different combinations of profitability, size, and time sensitivity to consider first.

A time difference of 11 days would affect the shipper in two ways. First, more inventory would be in transit at any given time. And second, to avoid running out of in-demand products, the shipper would have to stock more inventory as a buffer for unpredictable demand during those 11 days.

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Panama Canal Expansion: Shipper and Carrier Considerations
The expansion underscores the need for shippers and carriers to adapt their strategies and operations in light of the growing complexity of the logistics field. Let’s take a look at what shippers and carriers should be looking at following the Panama Canal expansion:

Shipper Considerations
Shippers need to do their own analysis to assess the tradeoffs between greater options and greater complexity. When time is of the essence, as it is for some products, speed may be more important than price. For other products, the cost savings of shipping through the Panama Canal will likely outweigh the extra time in transit. While their analysis might show that it makes sense to open or expand East Coast distribution centers, that decision will require partnering with a new or expanded set of ocean and land carriers and logistics service providers.

Carrier Considerations
For their part, carriers must evaluate investments, pricing, routing, and customer development. Investment may be required in terminals at East Coast ports that are most likely to gain traffic. Ocean carriers might need to revise schedules. Railroads might need to accommodate greater traffic in particular locations and develop relationships with new customers to serve inland markets. On the West Coast, carriers might need to offer selective discounts to hold on to traffic, but will need to do so wisely, since a large chunk of time-sensitive cargo will probably continue to move through the West Coast, with or without discounts.

Trucking companies will have opportunities, but will need to have business development activities and an adequate supply of drivers for new routes. Fortunately, some of the expected growth in volume will occur on routes that are more attractive than others to drivers.

Logistics Service Providers Considerations
Logistics service providers can help both carriers and shippers sort through their options. With energy costs, canal tolls, and other influences in flux, they will have an opportunity to serve customers that want to reduce logistics costs or outsource routing decisions.

Final Thoughts
These observations—along with the thoughts and insights shared in previous blog posts — came from the white paper by Boston Consulting Group and C.H. Robinson, entitled Wide Open: How the Panama Canal Expansion is Redrawing the Logistics Map. This paper offers many more observations about how the expansion will impact shippers and carriers.