There still seems to be a lot of optimism surrounding the benefits the $5 billion-plus Panama Canal expansion project can deliver to trucking – especially in terms of a shift in freight flows from the U.S. West Coast to the U.S. East Coast, though said shift is taking a while to develop.
“While the West Coast still handles about half of all shipping volume, the East Coast is seeing significant growth,” noted Walter Kemmsies, managing director, economist and chief strategist of the port, airport and global infrastructure (PAGI) group at consulting firm JLL Inc.
“The trans-Pacific trade lane is the largest in the U.S. by overall volume, so West Coast ports are still in high demand,” he explained in a statement. “But little room to build distribution centers near these ports, coupled with pressure to move cargo from the first to last mile, presents challenges for the future.”
Kemmsies’ comments stem from a new report compiled by JLL that shows that while West Coast port markets remain “naturally competitive,” especially in terms of handling U.S.-Asian trade, demand is escalating around East Coast and Gulf Coast ports.
Since 2013, for example, Mid-Atlantic and Southeastern seaports have seen a 20% hike in volumes compared to just 5% on the West Coast, Kemmsies explained; growth attributed to the expanded Panama Canal, increased trade with Asia, and importers progressively pursuing a “four-corner” strategy throughout the coasts for cost saving and risk control.
David Parker, chairman, president and CEO of TL carrier Covenant Transport, noted in his company’s second quarter earnings call that a freight shift of sorts began two years ago to New Jersey, Baltimore, MD, and Virginia ports from California and that is generating more outbound demand from eastern seaboard states.
“[The port of] Savannah [GA] just in the last year continues to explode. It continues to get big and it is really taking a lot of pressure off the state of Florida, which we all know is a bad outbound area,” he said during Covenant’s call.
“I am excited about what’s happening on Savannah and what it’s going to do to the south [and] I am thrilled about what’s happening [to] the East Coast ports,” Parker added.
So far, predictions are that a 10% shift in ocean freight from the Asian U.S. shipping route while shift over to Eats Coast ports due to the wider Panama Canal by 2020 and Parker for one thinks that will still occur.
Mark Marinko, CFO for Great Lakes Dredge & Dock Corp., provided further insight into this freight shift from a different perspective – from that of rising demand for expansion projects at East Coast ports.
“We can tell you expect to see ports along the East Coast pursue deepening projects in the next few years,” he said during a conference call with analysts back in May. “Many of the projects are progressing nicely and we are encouraged at the state and local governments are acknowledging their important roles in facilitating investment in federal projects.”
Marinko noted that there are currently seven states with “active legislation” to begin or improve funding for port and coastal work including Texas, Louisiana, Florida, South Carolina, North Carolina, New Jersey, and Connecticut.
“It still appears that Jacksonville [FL] will likely be the next port that tenders a bid now most likely in the third quarter of this year,” he added.
The JLL PAGI Seaport Outlook 2017 believes five major trends are starting to take shape that are being driven by the expanded Panama Canal, several of which impact trucking:
- Gulf Coast ports are winning the U.S. seaport trade wars. Thanks to the Panama Canal expansion and increased downstream demand in recent years, port volumes and industrial real estate demand are higher than ever in Gulf Coast ports, JLL noted. At the Port of Houston, for example, 20-ft. equivalent unit (TEU) volumes increased from 4.6% to 5.2% of total U.S. TEU volumes from 2010 to 2017.
- Mergers and alliances are causing uncertainty and changing the landscape of the shipping industry. The industry has shifted from four shipping alliances to three leading alliances which, combined, affect 90% of global trade routes. In the short term, those alliances disrupt the industry for tenants while helping ocean carriers stay competitive and reduce costs. With a number of mergers still occurring, control and travel routes will continue to shift.
- Larger ships are calling on U.S. ports, passing through the new Panama Canal. To accommodate larger vessels, U.S. ports led efforts to employ new cranes, dredge channels, have deeper berths and remove air draft restrictions. With larger vessels calling on ports, shipping liners are likely to reduce the number of port calls, which will only increase already fierce regional port competition.
- Next-day deliveries and autonomous vehicles are bringing the trucking industry to new height – with new challenges. E-commerce isn’t going anywhere, and neither is its dependence on trucking. The trucking industry is using technology more than ever to increase efficiency from the first to last mile, but congestion on the roads is getting worse. The only true resolution is a complex, multi-year decision that would impede delivery times and increase operating costs. This provides opportunities for other intermodal sectors like rail to lessen the burden.
- Rail needs to be nimble as competition from other transportation modes intensifies. Viewed by shippers as a cheaper, more environmentally sustainable alternative to trucking, the rail industry is expected to grow. With coal transportation waning, the industry is moving away from traditional cargo to being more nimble. Intermodal volumes have been a bright spot for railroads, accounting for over half of all railcar volumes. This is up from 40% percent just a decade ago.
“So far in 2017, all port markets across the U.S. have seen robust growth,” added Mark Levy, Executive Managing Director and leader of JLL’s PAGI group. “But over the last two years, East Coast ports – including New York/New Jersey and Jacksonville – have seen the largest decline in [real estate] vacancy rates.”