Debate questions true impact of larger cargo ships

Jacksonville Business Journal - by Mark Szakonyi Staff Writer

The question isn’t just how long it will take Jacksonville to be ready for post-Panamax ships, but also how much cargo the ships will bring here instead of the West Coast.

A debate is raging among the international supply-chain community on whether the expansion of the Panama Canal in 2014 will be a paradigm shift or a mirage. The international trade slump makes it even harder to determine whether shipping customers will move their cargo to and from the United States via the West Coast or through the canal to the East Coast.

“There is no clear answer,” said Jeb Atkinson, vice president of logistics practice for ProVenture. “The Panama Canal will add more options, but I don’t think it will redesign supply chains worldwide.”

After the Los Angeles port strike in 2002, shipping customers began shifting more of their cargo to the East Coast because union relations were more favorable, there is less road congestion and fewer environmental restrictions. But with the expanded canal’s opening approaching, West Coast ports and their union members have banded together to show a friendlier face to shipping customers.

When the expanded canal opens, ships capable of carrying up to 12,000 TEUs, or twenty-foot container units, will be able to call on East Coast ports. The largest containers ships that can pass through the canal now have a maximum 4,800 TEU capacity.

The U.S. Army Corps of Engineers, which handles the deepening of the St. Johns River, said the soonest the canal will be deep enough to handle the larger ships is 2016. The Jacksonville Port Authority said the timeline is too conservative and is pushing for the project to be finished closer to 2014.

Over the past year, the debate over the canal’s impact has ignited, largely due to West Coast railway executives downplaying how many shipping customers will switch their supply routes to the East Coast. The conclusion of Union Pacific Railroad and Burlington Northern Santa Fe Corp. executives at the Trans-Pacific Conference in Long Beach, Calif., was that Asian cargo distribution between the two coasts had hit an equilibrium, according to a Journal of Commerce article.

Warren Buffet’s Berkshire Hathaway’s acquisition of Burlington Northern in November also lent weight to the argument that the West Coast railways wouldn’t see much of their market share shift to their East Coast competitors, Atkinson said. West Coast proponents argue that the major retailers have already gone to an all-water shipping route, so the expanded canal’s opening won’t change much.

Many shipping customers have already taken the all-water routes, but more will if it’s economically feasible, said John Antonucci, vice president of corporate business development for OHL Global Freight Management and Logistics. It takes roughly 11 days more to get Asian cargo to the East Coast than it does to the West Coast.

The East Coast route costs about $1,000 per container more, he said. About 60 percent of Asian cargo heads to the West Coast, with the rest heading to the East Coast, Antonucci said. The degree of this change depends on the outcome of shipping companies’ rate negotiations with their customers in early May.

The size of the cargo shift also depends on the length of contracts that shipping companies have with terminal operators and stevedores, said Yem Bolumole, associate professor of logistics at the University of North Florida. Some trade would naturally shift from the West Coast to the East Coast because TraPac Inc. has built a terminal in Jacksonville and Hanjin Shipping Co. Ltd. plans to open its own in late 2013.

Whether Norfolk Southern Corp. and CSX Corp. get the needed state and federal funding to improve their systems connecting East Coast ports to major cities will also be a factor, Antonucci said. CSX’s $842 million private-public partnership initiative is expected to reduce transit times between coastal ports and major populations by one or two days.

Despite the decrease in cargo from Asia in the recession, circumventing containers from the West Coast to the East Coast still makes sense, said Roy Schleicher, the chief of commercial services for the authority. The West Coast ports will eventually face the same problems they did before the recession hit.