Thursday, April 28, 2016

EAST COAST PORTS TO SEE SLOW GROWTH WITH PANAMA CANAL EXPANSION


Interesting after all the comments on East Coast ports during and after the West Coast ports slowdown last year.




East Coast Ports to See Muted Boost From Panama Canal Expansion -CBRE

Ports shouldn’t expect a wave of new containers to pass through the Panama Canal’s wider locks, the real-estate broker says in a report.


The expansion of the Panama Canal, a $5.3 billion project, is supposed to serve container shipping and dry bulk shipping in trade and will open on June 26. ENLARGE                 
The expansion of the Panama Canal, a $5.3 billion project, is supposed to serve container shipping and dry bulk shipping in trade and will open on June 26. Photo: Bloomberg News
The opening of the Panama Canal’s new wider, deeper locks, isn’t likely to to send a wave of new cargo to the East Coast, industrial real estate brokerage CBRE Inc. said in a report.
The expansion, which is set to open in June, would allow for larger ships, potentially reducing the cost of transporting goods from Asia to ports from Houston to New York. But carriers have been shifting their routes to eastern ports for years, and the widened canal is unlikely to entice many more to take the plunge, CBRE said.
West Coast ports claimed 52% of U.S. container volume last year, down from 54% in 2014 and 57% in 2010, according to CBRE. The shift accelerated last year as shippers had to reroute their cargo amid labor strife at West Coast ports, helping East and Gulf Coast ports, including those in Savannah, New York, New Jersey and Charleston, to capture most of the 4.6% increase in U.S. container traffic in 2015, the report said.
The change in volumes “is going to be pretty minor,” said David Egan, head of industrial research in the Americas for CBRE. “Most of what we thought was going to happen has already happened.”
Rather, East Coast and Gulf Coast ports are likely to see a gradual increase in container volumes from Asia over many years, Mr. Egan said.
“Shipping freight to most U.S. regions is both quicker and more cost-effective through the West Coast ports than it is through the [Panama] Canal,” the report said. Though post-Panamax ships are expected to narrow the cost gap between coasts, the decision to shift cargo from one side of the country to the other involves a complex calculation of everything from proximity to population centers, fuel costs, and time.
Gerry Wang, chief executive of Seaspan Corp., which charters large container ships to shipping lines, said carriers are looking at sending bigger ships through the canal to the East Coast but remain wary about the ability of the ports to handle the vessels.
“The infrastructure, the port facilities will have a challenging time to deal with those new arrivals,” Mr. Wang said in an earnings call with analysts. He said some carrier executives have told him they plan to send smaller vessels of 7,000 to 8,000 twenty-foot-equivalent, or TEU, containers at first, “just to see how things work.”
“So, it is a question mark literally raised by every operator to me when I speak to them and we’re just as curious as anybody else,” Mr. Wang said.
Still, other long term factors will slowly make the East Coast more compelling, Mr. Egan said. East Coast ports are investing to catch up to their West Coast counterparts in terms of infrastructure, and manufacturing is moving west as costs in China rise. “Low-cost manufacturing is going to seek the cheapest place possible…[and] China is not necessarily the low-cost choice anymore,” he said.
When the point of production moves toward India and Africa, “going through the Pacific may not be the best choice,” he said. But that, too, is a shift that will take “quite some time.”
Write to Loretta Chao at loretta.chao@wsj.com