Panama Canal Expansion 5 Years Later: The Effect on West Coast Ports

Panama Canal’s Cocoli Locks

Panama Canal’s Cocoli Locks
The Mediterranean Shipping Company’s MSC Anzu transits the Panama Canal’s Cocoli Locks (Pacific side) in March 2017, becoming the 1,000th Neopanamax ship to transit the expanded canal. Photo courtesy of the Panama Canal Authority.

On the East Asia–North America shipping circuit, three major route options are open for companies moving cargo to America’s busiest cities via the intermodal system of ship, road and rail. These options include sailing to the North American West Coast; sailing through the Suez Canal to the North American East Coast; or sailing to the East Coast via the Panama Canal.

A variety of factors influence what choice a maritime company will make: the origin of the cargo and its destination; the type of cargo being shipped; and the state of labor relations in the major gateways are all common considerations. Another factor, at least until the Panama Canal was expanded in 2016, was whether a vessel could fit through the canal.

The size of the original locks limited the dimensions of vessels capable of using this cut-through to 965 feet in length, 106 feet in width, 41.2 feet in draught, with a maximum container capacity of 5,000 twenty-foot-equivalent units. The now-widened section of the canal allows ships of 1,200 feet in length, a width of 160.7 feet, draught of 49.9 feet, and a capacity of 13,000 twenty-foot equivalent units, according to the Panama Canal Authority.

The expansion of the Panama Canal gave companies with vessels previously too large to fit through the original waterway the option of using that route for the first time. This created shifts in traffic patterns, according to the Panama Canal Authority, that had the potential for siphoning cargo off from North American Pacific ports, and sending it to the East Coast.

“We analyze market share of volumes from Northeast Asia to the U.S. East Coast using the Panama Canal, to the West Coast using the intermodal system, and coming through the Suez Canal,” Argelis Moreno de Ducreax, senior international trade specialist at the Panama Canal Authority explained in a 2018 interview with Point to Point Magazine. “Since 2016, Panama’s share has increased from 43% to 48% and the intermodal share has decreased from 27% to 20%.”

Coastal Impacts

Much attention has been paid to East Coast ports and their responses to the canal’s expansion, as major ports from New York to Philadelphia, Savannah to Baltimore, invested in projects from dredging, installing new post-Panamax cranes, to even raising a bridge in New York City to allow larger vessels to pass underneath, all with the goal of accommodating Neo-Panamax vessels in their ports (“post-Panamax” and “Neo-Panamax” refer to the class of ship that is able to fit through the expanded canal, as opposed to “Panamax,” which refers to the class of ship that could fit through the original set of locks).

But less attention has been paid to how the West Coast has managed the impact of the expansion on its business. According to a white paper produced by the Boston Consulting Group and C.H. Robinson in 2015, predictions for how the West Coast would be impacted ranged from dire to neutral. Some of the worse-case scenarios predicted that if enough shipping companies change their routes and go to the East Coast via the third lock, that West Coast ports stood to lose as much as 10% of market share. In other scenarios presented in the same white paper — which took into consideration factors such as the East Coast overbuilding in their preparations for Neo-Panamax visitors, the extent of the recovery from the 2008 financial crisis and general manufacturing shifts — the West Coast stood to gain slightly from the canal’s expansion.

Five years later, what impact has the widened canal had on West Coast ports?

At the Port of Oakland, the impact has been minimal, officials there say.

“The expansion has not had any effects on our business. In fact, the first quarter of 2021 was our busiest quarter on record in our 94-year history,” port Acting Communications Director Roberto Bernardo wrote in an email to Pacific Maritime.

Port of Los Angeles Executive Director Gene Seroka told Pacific Maritime that as far as his port was concerned, “we’ve seen traffic continually rise since I’ve been here dating back to the summer of 2014. I think the canal’s widening has helped a number of folks including: giving shippers more choices on their routing; more accessibility to additional ports; (and) it’s given the liner shipping companies the ability to gain some economies of scale with larger ships going through.”

The canal, he added, “absolutely is competition. It absolutely gives cargo owners choices of where they can ship their cargo to and from, it makes ports raise their level of competitiveness… on the East and Gulf Coast, it gives additional trade opportunities to Central and South America. But from a look at the numbers, (there’s been) no direct impact immediately [on the Port of Los Angeles] by the opening of the third lock.”

However, according to the Port of Los Angeles, the San Pedro Bay complex lost 1% of market share from 2018 to 2020, even while cargo volumes continued to increase.

Port of Los Angeles spokesman Phillip Sanfield explained this to Pacific Maritime by explaining that “cargo continues to reach record volumes in the San Pedro Bay. At the same time, the port complex has seen a reduction of overall market share in recent years.”

“Shifting trade patterns, the expansion of East Coast and Southeastern U.S. ports, and diversification strategies of beneficial cargo owners are among the factors,” he said.

No Traffic Siphoning

So why has the worst scenario not transpired? The answer, in part, is that compared to the shifting trade patterns that have been playing out over the last two decades, influences such as labor strikes, technological improvements, and manufacturing transitions all play an outsized role compared to the canal’s expansion.

Canadian geographer and Professor of Global Studies Jean-Paul Rodrigue summed up how the canal has affected business in a 2019 paper for Transport Canada, where he stated that expansion of the Panama Canal has been “a signal” for the shipping industry to deploy more post-Panamax ships on the Atlantic coast, even if many of these ships are not using the Panama Canal.

“This has placed a pressure for many ports to be able to accommodate post- and Neo-Panamax ships,” he wrote. “Therefore, the expansion indirectly impacts ports by imposing new technical and operational requirements. West Coast ports have been impacted by the Panama Canal expansion, but this impact concerns discretionary cargo bound to more central locations within the American continent such as the Midwest.”

Technical and operational improvements have been taking place at the major West Coast ports, which are investing in technology, infrastructure and operational improvements, but there has not been any specific set of projects in the major gateways attributed to fears from Panama Canal competition, including at the Port of Los Angeles, which began a series of upgrades when Seroka took over in 2014.

“On the operational side, we worked in the areas of supply chain optimization to make sure we can increase velocity of cargo moving through our facilities while keeping in mind the health and safety of our workforce at all times,” Seroka explained. “We’ve introduced the first and still only port community system known as the port optimizer that allows for information sharing and an early look upstream to see how much cargo is coming so we can appropriate the right amount of staff and assets to the cargo flows.”

The port-wide upgrades have entailed a combination of three things, according to Seroka.

“One, really fine tuning our operations. Two, it’s been the digital technology that gives people the power of information, and thirdly the monetary incentives that say ‘please grow your business and do it better and we’ll reward you’,” he said. The changes weren’t a direct response of the canal’s expansion, Seroka added, but a model of best practices throughout the world, combined with what would be best for the West Coast market.

“I saw a lot of what other people did to bring their ports and businesses to higher levels. We started to develop what we thought would be attractive to the shipping community and went from there,” he remarked. “Of course, we looked at the canal, we looked at the East and Gulf Coast ports, but we also modeled what some of the world leaders are doing.”

Ultimately, cargo divergence facilitated by the expansion of the Panama Canal isn’t causing significant problems for the West Coast, officials have said.

“This is a hundred-year project at the Panama Canal and there was going to be very little sudden shift,” Seroka said, “but it helps word trade continued growth overall.”