How will the new Panama Canal affect freight train business, as well as shipping from one ocean to another?
No one seems certain whether this is good news or bad news, but it is definitely news: On Sunday, the expanded Panama Canal opens for shipping traffic.
The Panama Canal is almost 103 years old, dating back to the presidency of Woodrow Wilson, who participated in the opening of the shipping waterway between the Pacific Ocean and the Atlantic Ocean (via the Caribbean Sea). The Panama Canal was created for shipping vessels that traversed the oceans back at the beginning of the 20th Century.
It is now the 21st Century, and the shipping vessels has grown to more than double the size of the first ships that passed through the sluice. That’s why Panama used the funds received in loans from lenders in Japan, the United States and Europe to complete the $5.25 billion expansion.
This is good news for those companies operating the gigantic hotel-sized ships that carry shipping container on top of shipping container and need to get from one side of the Northern Hemisphere to the other.
Assuming that is what happens, the expanded Panama Canal is bad news for the railway companies operating freight trains from West Coast ports to all landlocked sites in the United States and Canada.
Follow the money: the cost of shipping items from Asia to the eastern United States will decrease thanks to the expanded Panama Canal. These monstrous ships significantly reduce per-unit freight costs and fuel costs.
Those monstrous shipping containers that today are loaded off the water-traveling transports and placed onto rail-traveling transports will instead stay afloat until it reaches the Atlantic Ocean ports of New Orleans, Miami, and up the East Coast to ports that are building newer and larger docks to handle the huge payloads.
For instance, Business Insider reports that shipping companies Maersk and MSC already have a service scheduled to Mobile, Ala., through the new Panama Canal, skipping their usual stops in Los Angeles and Long Beach, Calif.
In response, railways are expected to drop their fees for transporting goods. Union Pacific, which operates solely west of the Mississippi River, is anticipating little change due to the new expanded Panama waterway.
“I think the West Coast ports still will remain a very strong, viable competitor,’’ said Union Pacific executive vice president for marketing and sales Eric Butler in an interview with BI. “We are not change our perspective and our outlook that we have had over the last couple of years.”
In fact, many of the East Coast docks cannot yet handle the larger ships that can carry as much as 18,000 20-foot containers. Even the new canal cannot handle a load of that size; it is limited to ships with 13,000 such containers.
According to the Wall Street Journal, the American Association of Port Authorities expects $155 billion will be invested in the expansion of American ports to handle the bigger ships by 2020.
Another reaction has come from the Panama Canal’s more successful competitor, the Suez Canal that runs through Egypt. The Suez has dropped its tolls by up to 65 percent depending on the materials to compete with the Panama.
The canal might have greater impact on north-to-south traffic. Goods from the heartland of Canada and the U.S. can head due south to the Gulf Coast and sail from there through the canal to get to the burgeoning markets in Asia.
There is a time element involved. Ships with the kind of load these mega-movers have travel slowly, and getting through the canal takes a long time, longer than it takes to move material by rail.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.