Expanded Panama Canal Boon for Eastern Ports, Oakland Lags

To little fanfare outside the world of international shipping and logistics, this summer marked the one-year anniversary of a third lane of traffic being open at the Panama Canal. Importantly, this expanded capacity was built to handle vessels three times the size than could previously use the canal. The completion of this $5 billion project means that 80% of the global tanker fleet can now use Panama, up from just 5%.

The key impact for US ports and domestic supply chains is that larger ships traveling from Asia to the Eastern US carrying cost-sensitive goods can now cut transport expenses by choosing the Panama Canal over the Suez Canal. See diagram below for a quick geography refresher:

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The importance of this new option is not lost on the major western ports, Los Angeles-Long Beach, Oakland and Seattle-Tacoma, since most goods from Asia destined for the eastern US offload on the west coast then travel by rail or truck. This is still the quickest option, but larger ships with goods more sensitive to cost than time are opting to sail through Panama.

Port data prove out this shift, as billions in infrastructure projects from New York to Miami to Savannah to prepare for the Panama Canal expansion begin to pay off. Combined volume at the Georgia ports of Savannah and Brunswick is up 10.8% thus far in 2017 compared to 2016. Meanwhile across the bay in Oakland, volume is up a mere 2% during the same time period.

This tepid growth in Oakland underscores a larger trend. Since 2003, volume at those same Georgia ports is up almost 140%, whereas Oakland has pushed merely 23% more tonnage through its port.

To appreciate the full impact of these emerging shipping trends, its important to examine the entire regional logistics infrastructure, not just ships, cranes and containers. As Walter Kemmsies, the Managing Director and Chief Strategist for Ports, Airports and Global Infrastructure at JLL, a global real estate brokerage, explained in a story this month,

 

We view a port not just as a place for a ship to unload cargo, but as a gateway. The water, the labor force, rail connections, intermodal centers, warehouses … it’s all one big package.

A tour of Oakland’s waterfront and surrounding area – or San Francisco’s for that matter – yields acres upon acres of barely or unused land. Prevented from being developed by jurisdictional bureaucracy, high land prices and environmental concerns, what could be a source of tremendous job growth for middle-income workers is instead a wasteland of unused piers, vacant lots and abandoned industrial facilities.

The best San Francisco has been able to muster recently was the delivery of a few hundred shrink-wrapped Tesla Model 3s to Pier 80, a 60-acre terminal between DogPatch and Bayview which has been collecting dust for decades. More automobile shipments are supposed to be on their way, but with the recent closure of the Pier 70 shipyard, industrial activity across San Francisco’s waterfront continues to flounder and miss out on opportunities.

Meanwhile the rest of the country is capitalizing on the changing landscape of international logistics. Miami recently spent $1 billion dredging its harbor to accommodate larger ships. The Port Authority of New York and New Jersey spent $1.3 billion raising the Bayonne Bridge and another $2.7 billion to improve aging equipment and facilities.


And with warehouses close to urban centers being snatched up for redevelopment and repurposing for higher paying tenants, the space in which urban industrial activity can take place is getting scarcer by the day.