Transportation Capabilities of Panama Expansion - Literature review Example

Abstract

The completion of Panama Canal expansion is to have a number of impacts on trade in the route of Asia to the United States as well as intensify competition amongst the U.S. ports. According to most experts, this multi-billion dollar project is anticipated to create a huge economic impact on several areas not only in the United States but across the globe. Just to focus on the United States alone, this expansion will hugely influence on ports such as East Coast port that are expected to expand further due to increased investments in harbor expansion and rising cargo traffics and imports. Yu (2014) explains that the overall expansion will necessarily provide access for the increased post-Panama ships that will target the East-Coast ports. According to the government reports, it is approximated that import traffic shifts to the East Coast increased by about 20-25%. Larger ships will reduce the transit time for goods which will lead to efficiency in logistics and supply. Ideally, transportation of goods will be faster by eliminating the West Coast port stop over to reduce the train transportation of heavy loads to the East Coast. In this research paper, evaluation of the economic impact of Panama expansion on the US Gulf of Mexico ports is key. On the other side, analysis of freight transportation capabilities that will come with the expansion is a vital element too for this paper. Next, it will evaluate the opportunities that the expansion project will bring to investors as well as companies that rely on effective supply chain management.

Introduction

Panama Canal expansion project is one of the largest construction projects in the U.S. inland infrastructure history. The project is being initiated to include a third set of locks bigger and larger than the existing ones to widen further and deepen the access channels that cuts between the Panama Mountain. Liu, Wilson, and Luo (2016) explains that the expansion comes at a time when the canal is facing intensive competition and losing its shipping traffic to the Suez Canal of Egypt. To attract and restore its competition, the canal needed to revamp the logistics industry in luring more ships that have been using the passage to connect the Eastern ports of US to those of Asia.

Even though the project is expected to dig deep into the taxpayer money, it is a project worth investment. The expansion is primarily aimed at boosting the economy through improving management of logistics and supply chain in terms of shipping. According to Wang, Talley, and Brooks (2016), the larger locks and channels will enable passage of ships almost twice to the current transit canal. More importantly, the number of vessels that will be able to pass through the canal will increase dramatically due to larger docks. Ideally, the total annual throughput capacity will double from the current number. These changes are not only anticipated to affect the size of vessels but also are expected to have a lot of influence on the carrier services offered at the port. The shipping patterns will change, and definitely, efficiency will be enhanced.

Freight Transportation Capabilities within the New Panama Canal Expansion

Transportation Efficiency

According to a meta-analysis of studies, the Panama Canal expansion has a number of paradigms for shipping as well as transportation of goods. The canal expansion will not only allow the number of cargo ships to double up but also allow larger ships to trail along the canal. When completed it will bring changes in the infrastructure of the ports to enhance transport network between ports. Reliability, reduced time and cost will mark the American new shipping system. The number of ships flowing between the North East Asia and the U.S. will rise by a greater percentage. According to a logistics industry expert, nearly 80% of ships expected to sail in order are the post-Panamax size; the ports shall be enlarged to accommodate these larger ships (Yu, 2014). This will capture the attention of the traffic that currently goes through West Coast ports to reach the East Coast port by rail. This means that movement of goods will experience shifts that enhance business to the suppliers and retailers. This will be influenced in four ways.

First, the transportation network will be enhanced to respond to the current market needs. The changes in the technological system will ensure the changes in other parts of the network to accommodate the large information required for an efficient logistics and supply chain networks. In fact, the enhancement of the port facilities will allow for faster and efficient movement of the large ships between the Gulf Coast ports and the U.S East Coast ports.

Second, Fan, Wilson, and Tolliver (2009) argued that the canal will enable movement of ships to be rerouted to take over the available transportation network that is cheaper, reliable and more timely in nature. For instance, most suppliers may opt to ship their cargos through the Panama Canal rather than use the West Coast ports or the North American intermodal system of rail, barge, and trucking. Subsequently, the expansion will come with new decision making and shipper’s distribution strategies that will significantly have an impact on the overall transportation network. Wang, Talley, and Brooks (2016) speculate that most companies may shift to blue ocean strategy to resort to the most efficient transportation mode.

Nonetheless, location and sourcing of goods may be shifted to take advantage of cheaper transportation costs, cheap raw materials, less traffic, reduced port congestion and cheap human resources. It can be argued that with efficient shipping, carriers as well as suppliers can make decisions that are aimed towards boosting the overall performances of business across the globe. Based on the size as well as the number of the post-Panamax ships, large volumes of goods and cargo will flow through the Canal based on what the U.S. companies need to export and import. China being the largest sourcing destination to the country, it is expected that the U.S. imports will continue to grow as the partners are speculated to have a more cooperative future. Meaning that, Panama Canal is the bridge that will connect the China and U.S. trade.

The Panama Canal expansion will boost cargo handling at the ports to make the freight movement more efficient than before. According to Yu (2014), the infrastructure investment is quite huge and will cater for the port handling facilities that are anticipated to enable faster handling of goods to the shippers as well as carriers. For instance, the Port of New York will be upgraded by $ 1.3 billion to erect the Bayonne Bridge 64 feet just to enable faster clearance of the post-Panamax ships. On the other hand, the investment includes bigger freight yards anticipated to improve connections to the rail heads that supports double-decker rail clearances. Fan, Wilson, and Tolliver (2009) purported that, with such a revamp infrastructure large companies will take the advantage to rebalance their supply chain network thereby enhancing their intermodal capabilities.

Transport Cost Reduction

Through Panama expansion, the transport costs are expected to go drastically down through fuel saving. Wang, Talley, and Brooks (2016) in their report explain that the canal expansion opens up new opportunities for energy savings. Ideally, the higher fuel costs across the globe are driving for slow steaming ships to reduce shipping costs. The slow steaming ships will mean slower supply chain and larger warehouses to store the goods. However, with Panama expansion, the larger manufacturer will only need to store goods and keep the inventories buoyant to serve the needs of retailers on a real-time basis.

Impacts of Panama Expansion on the US Gulf of Mexico ports

Competition between the Ports

With larger channels that are to be enabled by Panama expansion, the ports will be competing to host the larger ships. According to Fan, Wilson, and Tolliver (2009), with the great number and larger vessels shipping through the expanded Panama Canal, there is the likelihood of fewer ports of call. Thus, this means that the ports alongside the U.S. Eastern Seaboard will be competing to be the destination of the large ships. However, as noted by Yu (2014), there will be winners and losers in this competition. The winners will be the U.S. East Coast ports that are already preparing for the post-Panama expansion. For instance, the Port of Norfolk has already built 50- feet draft depth needed to dock the anticipated large size containers and ships after the Panama expansion completion. The losers will be ports that shall not have adopted to the anticipated change.

Just recently, when there were work stoppages at the U.S. Gulf ports, some ships shifted their route to the East Coast ports. It is quite obvious this trend may continue even after the completion of the Canal expansion. A more recent research by Liu, Wilson, and Luo (2016) reveals that an estimate of 10% of ship traffic from Asia may shift to the United States East Coast ports from West Coast ports by 2019. Consequently, this informs a conclusion that the Panama expansion will have a lot of negative economic impacts on the Mexican Gulf ports. Fan, Wilson, and Tolliver (2009) explain that the attention of shippers, as well as carriers, will be shifted to major ports that will be able to handle their cargos in real-time and efficiently. However, the competition for market share will not only exist for the U.S. East Coast port but also to the West Coast ports. The high-value cargo will still go via West Coast ports to boost the economy of the ports despite the anticipated shift due to cost efficiencies.

Muirhead, Minton, Miller, and Ruiz (2015) argued that the Panama expansion will entirely shift the attention and wealth to East Coast ports rather than the West Coast ports. Essentially, shippers and carriers will make the decision to use more efficient route rather than traditional ones that result in delays in delivery of their cargo and goods. For instance, the discretionary cargo that had always been shipped through Memphis will now reach the U.S East Coast through all water routes to be distributed westward as far as Dallas. Indeed, with increased cargo volumes, most suppliers and carriers will move their warehouses from the Gulf ports to the East Coast ports to be more efficient in delivering their goods to the retailers as well as customers. According to Wang, Talley, and Brooks (2016), the infrastructure development around the receiving ports is anticipated to grow both inland and coastland while those of the losing Gulf ports to reduce.

Diversification of Freight Diversification Strategies

The Panama expansion will essentially bring with it new diversification strategies. The shippers will be committed to diversifying and mitigating the logistics and supply chain risks. They definitely will have to weigh between the different ports in trying to protect their supply chain grid as well as other unforeseen crises. Ideally, this is a boost to the East Coast ports compared to the West Coast ports. Comparably, the East Coast ports have developed critical mass port infrastructure, has the population base and an established intermodal rail that possess less risk to the users. This may lure majority of shippers and suppliers to use the route rather than the traditional route.

According to Wang, Talley, and Brooks (2016), the expansion of Panama Canal is making companies to re-examine their facility positioning and logistic processes. This has been realized to be enhanced only through effective logistics and supply chain management. Hence, it means that the resurgence can only materialize through the Panama Canal expansion providing companies with alternatives and more options to contemplate their supply chain strategies. If predictions are to be true, then the Panama Canal will be the best route for most shippers and carriers thereby intensifying businesses at the East Coast ports compared to those on the West Coast.

Conclusion

The Panama Canal expansion is a multi-billion dollar project that will not only improve freight and intermodal transportation system but a game changer for the East Coast ports. Coupled with lower cost, reliable and real-time shipment, most manufacturers and retailers will start to reconfigure their network of distributors and factories to the East Coast ports. This will immensely impact on the performance and economics of the US Gulf of Mexico ports. The many and larger size ships will prefer the developed East Coast ports that can handle their cargos as well as improve the flexibility and resilience of their supply chains.