The Panama Canal Expansion and its Effects

Port Congestion Surcharge

The Panama Canal expansion project, also known as the “Third Set of Locks Project”, is set to double the capacity of the Panama Canal by creating a new lane of traffic and allowing more and larger ships to transit. The project is expected to be complete by 2015. At an estimated cost of more than US$5billion, this is one of largest of such expansions.  As a result, Long Beach, like other West Coast ports, faces a looming challenge.The approval of US$1.02billion budget by the Long Beach City Council for the current fiscal year will help the facility maintain its growth in the coming years, as industry observers predict.

This considerable sum, which is funded from the facility’s revenues from its shipping operations, will be spent on a number of key infrastructure projects. These include not only the upgrading of terminals at the port, but also investment in roads and a bridge, according to port officials. The Long Beach Port believes that through investing in its infrastructure, and ensuring it offers strong intermodal connections, it will remain vital to US trade.

It is essential that the West Coast US ports invest in their facilities, in particular their intermodal links. At present the southern Californian ports of LA and Long Beach serve as the key entry points to the US for goods being shipped from Asia, in particular China. However, their importance will come under threat once the widening of the Panama Canal’s locks are completed. This will enable ships of 12,500 twenty-foot equivalent unit (TEU) capacity to pass through the channel, significantly larger than the 4,000TEU ships which are the current largest. This will tempt shipping companies to use these larger ships and sail directly to the large East Coast markets, utilizing US East Coast ports directly rather than West Coast facilitates.

In order to compete with this, the West Coast ports need to ensure that their connections are as efficient as possible, and this budget should help in this aim. The ports of LA and Long Beach will also benefit from the continued growth of container ships as many predict. With the trend of “bigger is better” continuing to play out in shipping industry, many of the new ships coming online now will be too large to pass through the Panama Canal, even after its expansion. The Port of Long Beach is expected to continue to enjoy strong growth over the medium term, in spite of the challenges it will face. As the US recovery continues, industry experts expect Long Beach to benefit, seeing annual box output growth average 7.8% over medium-term forecast period by some estimates. This will be boosted by a particularly strong 2013, forecast growth of 13.4%, predicated on many analyses. Through ensuring that they are able to accommodate bigger ships that are expected to dominate the shipping industry in the next decade, and offer efficient onwards connections, Long Beach and LA should continue to play a pivotal role in US Trade.