BMI Research: US East Coast ports & Panama Canal expansion – no short-term benefits
Industry Trend Analysis – Few Short-Term Benefits From Panama Canal Expansion
BMI View: The port of New York-New Jersey will face short-term challenges in taking advantage of the expansion of the Panama Canal to capture an increasing share of Asia-US trade. Continuing infrastructure deficiencies, ongoing labour tensions and significant congestion on inland transport routes will hinder the ability to manage larger throughput volumes, and cause supply chain delays.
The expansion of the Panama Canal has opened up opportunities for US East Coast ports, particularly New York-New Jersey, to grow their role in US-Asia trade by offering diversification options over West Coast ports. Indeed, the East Coast ports do offer a number of comparative advantages, including closer access to large consumer markets in the north east and a lower risk of labour disputes, which plagued West Coast ports for prolonged periods in 2014 and 2015 and caused huge disruption to trade. This has already resulted in some trade shifting from the West to the East coast, with Seattle, Oakland and Los Angeles all experiencing a contraction in twenty-foot equivalent unit (TEU) throughput in 2015, while BMI estimates that New York-New Jersey posted
expansion of an estimated 10.4% y-o-y.
Construction Delays, Labour Unrest And Congestion Key Risks
However, becoming able to handle this increase in trade volumes will be a major challenge for New York-New Jersey. One of the major obstacles facing the port is the slow progress on a project to raise the Bayonne Bridge, which is not expected to be completed until late 2017. This project will allow the larger 14,000 TEU vessels which can pass through the expanded Panama Canal to enter the harbour. While investment in infrastructure needed to handle these larger ships has been underway at New York-New Jersey since 2010, numerous delays to the Bayonne Bridge project continue to limit the extent to which the port will be able to receive these vessels. Some major international shipping companies, including AP Moller-Maersk and Hapag Lloyd, have consequently elected not to change their routes, as the inability to access New York-New Jersey with larger ships means they are unable to achieve necessary economies of scale by plying East Coast rather than West Coast routes.
In addition, an improvement in labour relations will be necessary for dealing with growing throughput. Labour unrest remains an unresolved issue, even if it is less disruptive than at West Coast ports, contributing to congestion at terminals. A wildcat strike in January 2016 resulted in hour-long delays in transporting containers from warehouses to ports. Even relatively small disruptions pose considerable costs to businesses reliant on efficient supply chains. Labour unrest is likely to continue as the port attempts greater automation, a process which is opposed by trade unions.
Congestion is also a major concern on the inland transportation routes surrounding New York-New Jersey, adding to supply chain delays. The INRIX 2015Traffic Scorecard ranked New York as the fifth most congested city in the US, and a growing population combined with expanding car ownership is putting a strain on the road network. This will be exacerbated when the larger ships begin to call at New York-New Jersey, as they will be unloading a larger volume of containers during a shorter time. It will be some time before more efficient unloading and dispatch of containers is developed by port authorities, and both congestion in the terminals themselves and on surrounding roads will likely increase in the short term.