Manufacturers Are Preparing for the Opening of the New, Bigger Panama Canal

By offering a new alternative to American manufacturers and distributors, the opening of the greatly expanded Panama Canal next year will roil North American logistics and reshape the way companies get their products to business customers across the U.S., as well as reboot how many vendors approach the entire Western Hemisphere market.

“Now you can have these massive ships go directly to the East Coast, and that is going to drastically change the way merchandise is distributed,” said Carla Lopez, head of research in Latin America for CBRR Group, a commercial real estate services and investment firm.

“For some products, the cost savings of shipping through the Panama Canal will likely outweigh the extra time in transit.”

Or, as Boston Consulting Group has put it, “The $5-billion project promises to reorient the landscape of the logistics industry and alter the decision-making calculus of the shippers that the canal serves.”

Specifically, BCG said, “Companies accustomed to shipping to the West Coast and relying on relatively fast rail service to reach much of the U.S. are likely [now] to take a much more segmented and dynamic approach. When time is of the essence, as it is for some products, that routing may continue to make sense. But for other products, the cost savings of shipping through the Panama Canal will likely outweigh the extra time in transit.”

“Shippers need to do the analysis. There is no shortcut,” BCG warns. “The exercise might show that it makes sense to open or expand East Coast distribution centers. It almost certainly will show the need to partner with a new or expanded set of ocean and land carriers and logistics services providers.”

Certainly the opening of the bigger canal will be welcomed by retailers and other U.S. companies that want to have an alternative for shipping goods to the Eastern part of the country after labor unrest at Pacific Coast ports earlier this year clogged their supply chain and threatened to slow down the entire U.S. economy. Most manufactured goods now coming from China and other Asian countries land at Pacific ports and then are distributed across the rest of the U.S.

The canal opening also will beckon many American manufacturers of all sizes to take advantage of this suddenly much more capacious conduit. Already because of the new opportunities that will be opened up by the bigger canal, about 16% of U.S. manufacturers are looking to establish new operations in Latin America, according to a report by Bank America Merrill Lynch.

Especially in southern ports such as Miami, “Now is the time for small- to mid-sized businesses to shift their strategies and ramp up operations to try and get a piece of the action before their competitors do,” said Doug Davidson, a Merrill Lynch banking executive.

The canal’s opening is also causing changes across many other U.S. ports. In particular, those on the East Coast are spending billions of dollars to deepen their harbors, increase their bridge heights and transform their infrastructure to accommodate the larger vessels. Meanwhile, many smaller and western ports are expected to be disadvantaged by these changes.

The opening of the Panama Canal greatly shifted the balance of commerce a century ago. Now, the reopening of a larger passageway will rock global business again.

 

Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.

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