Panama project threatens West Coast ports' lock on Asia trade
The ports of Los Angeles and Long Beach are already feeling the squeeze from higher costs and weaker volumes. Now, they face a new challenge from an expanded Panama Canal.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The past seven years have been interesting times at the ports of Los Angeles and Long Beach.
In October 2002, a management lockout of waterfront labor led to a 10-day shutdown during the
peak shipping season. In 2004, an avalanche of Asian imports clogged the ports almost beyond
recognition, creating supply chain nightmares for shippers, carriers, and retailers. For the past
two years, the ports have been the battleground between local officials and the trucking industry
over the constitutionality of the ports' clean air plan, a sweeping initiative that truckers see as
unlawful interference in interstate commerce by a local government. And the ports have borne the
brunt of the worldwide economic downturn and the sharp fall-off in Asian import traffic into the
United States.
Despite high costs, regulatory burdens, and the congestion issues that have plagued the two
ports, about 60 percent of all U.S. seagoing containerized traffic still moves through their
gates. To many, the twin ports remain the barometer by which the health of domestic and global
commerce is measured.
Now, the ports face a new challenge to their competitive position, one that could not only
lead to a significant and permanent diversion of cargoes but could also have implications for
the warehousing and distribution center infrastructures in the Los Angeles basin and across
the nation.
The Panama Canal is in the midst of its biggest expansion since its completion in 1914.
The megaproject will create a new lane of traffic along the canal by constructing two lock
complexes, one on the Atlantic side and another on the Pacific side. The work also calls for
the widening of existing navigational channels, excavating for access channels to the new locks,
and a deepening of the channel system to about 60 feet.
The project, which is expected to double the Panama Canal's total capacity, will enable the
canal to accommodate ships built to carry a maximum of 12,600 twenty-foot equivalent unit (TEU)
containers, up from a ceiling of 4,400 TEUs today. According to the Panama Maritime Authority,
8.4 million TEUs will transit the canal in 2015, a sharp increase from the 6.6 million expected
to move through in 2010.
More traffic routed through the Isthmus could mean less cargo entering the West Coast ports.
Retailers and other importers with operations along the East and Gulf coasts may prefer an
all-water routing that delivers containers to facilities relatively near their destinations and does so at a lower per-unit cost than the traditional method of offloading containers on the West
Coast and moving them hundreds or even thousands of miles via rail intermodal service.
In a summer 2009 study, Jones Lang LaSalle Inc., a Chicago-based real-estate company with a
supply chain practice, predicted the ports of L.A./Long Beach, Oakland, Seattle/Tacoma, and Portland
would lose up to 25 percent of their existing cargo base to East and Gulf coast ports in the
decades to come. JLL says traffic diversion will be caused by the expansion of the canal and
escalating competition from Eastern ports seeking to leverage that expansion to attract more of
the trans-Pacific container trade.
One port that appears ready to rumble is the Port of Charleston, S.C. Port officials believe the
canal's expansion will put up to 2 million TEUs in play and that its 47-foot drafts at the entrance
channel will be more than sufficient to handle containerships carrying up to 8,000 TEUs.
To meet anticipated demand, Charleston says it is building a container terminal at the city's
former naval base that will increase container handling capacity by 50 percent. The 60-mile area
around the port will gain more than 20 million square feet of production and distribution capacity
over the next few years, with 3 million square feet expected to come online in 2009 alone, port
officials say.
Fears overblown
Not everyone believes the canal's expansion spells big trouble for Los Angeles and Long Beach.
Curtis Spencer, president of IMS Worldwide Inc., a Webster, Texas-based industrial property firm,
says the ports will suffer no more than 10 percent market share erosion, a figure that includes
traffic diversion of 5 percent that has already occurred since the 2005–2007 peak.
Spencer says share losses will be capped by the ports' favorable geographic proximity to Asian
production centers and the ability of railroads serving the Los Angeles basin to slash intermodal
rates to discourage cargo diversion.
"The Western railroads will lower their rates in an instant if they see market share erosion
get to 10 percent," Spencer says. He adds, however, that the ports are unlikely to ever recapture
the tonnage diverted elsewhere.
Port officials say they don't expect to lose much additional business due to the canal expansion,
noting that some large retailers have already added distribution centers on the East Coast that
could be fed by the canal.
"If retailers have the need to send goods all-water, they're most likely already doing so today
and don't need to wait for the larger ships," says Rachel Campbell, a spokeswoman for the Port of
Los Angeles.
Campbell says the lower per-unit costs of an all-water movement through an expanded canal could
be offset by the higher tolls that could be imposed on operators of the larger vessels. "How much
diversion occurs will still depend on rates and service times," she says.
APL, the container shipping and logistics giant, shares the same wait-and-see attitude. As
spokesman Mike Zampa puts it: "Some cargo diversion is likely. But it's difficult to say what the
level of activity will be."
Zampa says any shifts in tonnage will depend on market conditions, port and rail pricing
strategies, and the "ability of East and Gulf coast ports to accommodate the larger vessels that
will transit the Panama Canal after expansion." The ports' capability to handle the biggest of
those ships remains an open question. Currently, Los Angeles/Long Beach, Norfolk, Va., and
Mexico's Lázaro Cardenas are the only North American ports with drafts of 50 feet or deeper. The
Port of New York & New Jersey and the Port of Mobile, Ala., have tapped the public markets for
financing to pay for berth widening and deepening projects.
A ripple effect
Any shift in traffic patterns is likely to have a knock-on effect on the industrial properties that
surround the nation's ports. A flurry of building during boom times has led to a glut of industrial
space around seaports, according to the Jones Lang LaSalle report. The firm cites Houston,
Jacksonville, Fla., and Savannah, Ga., as three of the markets where space is especially
abundant.
Spencer of IMS Worldwide doesn't see much oversupply of warehousing and distribution center
space around seaport facilities. However, he acknowledges that market share erosion at Los Angeles
and Long Beach is likely to put pricing pressure on the facilities that surround the ports.
It appears some markets are already feeling the pressure. John Talhelm, head of JLL's Houston
office, says oversupply at Houston has "shifted the leverage to the tenant," with creditworthy
businesses able to negotiate perks ranging from free rent to substantial improvements to the
property. In northern New Jersey, an abundance of industrial space surrounding the Port of New
York & New Jersey has created "wonderful opportunities" for importers, exporters, and 3PLs seeking
to snatch up prime real estate at reasonable prices, according to Stephen F. Blau, director of
corporate services for NAI Mertz, an industrial property developer in Mt. Laurel, N.J.
Still, there seems to be an allure to waterfront property that has historically insulated it
from market fluctuations. Blau cites the example of New York City's Manhattan waterfront, once
ringed by docks and warehouses but now home to high-end residential and commercial development.
"We live in a world in which yesterday's sweat shops are today's trendy loft apartments," he says.
"Although the use may change, there will always be demand for waterfront properties."
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.