After many billions of dollars spent in design and construction, and now over 20 months behind schedule, soon the Panama Canal Authority (ACP) will officially open its new gates to toll-paying container, tanker and cargo ships on June 26, 2016 to handle larger container ships from Asia. The Panama Canal expansion itself is a 48-mile channel connecting the Atlantic and Pacific oceans to handle growing international trade volumes that began in September 2007 has an estimated cost of $5.4 billion.

Previously, the maximum ship size that could transit the canal--classified as Panamax--was constrained by the size of the two main locks, which measured 110 feet wide, 1,050 feet long and 41.2 feet deep. The wider locks now measure 180 feet wide, 1,400 feet long and 60 feet deep, doubling the waterway's capacity and accommodating Post-Panamax ships measuring up to 1,200 feet long and carrying as many as 14,000 TEUs (twenty-foot equivalent units).

The debut of the expanded Panama Canal marks a fundamental shift in the shipment of Asian goods to the Eastern U.S. The short term won't bring massive, game-changing gains for East Coast ports because much of that repositioning already occurred in recent years. But it will shift U.S. cargo delivery from slightly favoring the West Coast to a more even split between the two coasts.

Impact of Panama Canal Expansion on U.S. Seaports:

• Increased capacity of the Panama Canal will, in the long-term, result in more mega ships carrying Asian export cargo directly to the East Coast.
• Mega ship transit of the canal currently is not a cost-effective solution within many established supply chain networks, but this is likely to change in coming years as consumer demand and supply networks evolve.
• Japanese shipping line NYK is launching a new weekly mega-ship service from Asia to the East Coast with stops in New York, Norfolk and Savannah.
• Potential impact for the East Coast logistics real estate market is increased demand for warehouse and distribution space, along with heightened port capacity.

CBRE further reports that the expansion's main goal was to construct an additional set of locks on both the Pacific and Atlantic sides of the Panama Canal, creating a third lane of traffic for mega ships. Ancillary projects included the excavation of the Pacific Access Channel to link the new locks to the Pacific Ocean, dredging of additional navigational channels and structural changes to increase capacity of the canal's 163-square-mile water reservoir, Gatun Lake.  With cargo shipped to and from the U.S. comprising the majority of shipments through the canal, this expansion could significantly impact American trade routes

Considering the increase in traffic associated with the expansion, the ACP implemented a congestion pricing system that allows shippers to book canal-passage appointments up to a year in advance. The first reservation for transit through the expanded set of locks was granted to liquefied petroleum gas (LPG) tanker LINDEN PRIDE of Nippon Yusen Kaisha (NYK Line). As a part of the G6 Alliance--a six-member coalition of shipping lines formed to share vessels and increase economies of scale--NYK has already made a number of changes to its routes in anticipation of the canal's reopening. After suspending its NYE/SCE Combo and NCE services--routes from Asia to South and Central America, the Caribbean and the U.S. East Coast--the Japanese shipping line recently introduced NYX, a new weekly service covering Asia and the East Coast using 10,000 TEU-plus Neo-Panamax ships. The new loop goes from Asia (with stops in Qingdao, Ningbo, Shanghai and Busan) through the canal to Port Manzanillo then on to the U.S. (making stops in New York, Norfolk, and Savannah) before turning around. According to the canal's online booking system, there are 155 slots booked for Neo-Panamax ships through the end of the year. Of the vessels that have booked slots, 95 of them are traveling from the Pacific to the Atlantic, and 60 are transiting the canal in the opposite direction. Most shipping lines have not yet deployed regular mega-ship service, and the numerous pressures faced by shippers--including overcapacity and plummeting shipping rates--are likely to delay adoption of this strategy. Companies likely will continue weighing the cost and benefits of gradually replacing smaller vessels along their established routes to increase efficiency over the next several years.
 
Although the expanded canal will alter the movement of goods traveling around the world, several shifts have already taken place. In 2015, shippers continued to bypass congested West Coast ports in favor of the East Coast, challenging the market share of long- dominant ports and thrusting others into the spotlight. Major East and Gulf Coast ports accounted for nearly all of North America's cargo volume growth last year, rivaling the dominant players in the West. The West Coast's market share dropped to 52% of all TEU volume last year, down from 54% in 2014 and 57% in 2010. This shifting preference means that the opening of the widened Panama Canal later this month likely won't have as large an impact on cargo destinations as previously thought. Much of the cargo that could be transferred from West to East Coast delivery has already shifted. Given the current construction of many supply chain networks, the cost and time savings of mega-sized vessels passing through Panama to deliver cargo to the East Coast, rather than just docking on the West Coast and moving cargo east via rail and truck, are still not significant enough to spark an accelerated shift to East Coast ports.

Concluding that the location needs of supply chain users are always evolving to meet increasingly complex inventory requirements. So, over a longer term horizon, the ability of mega-ships to pass through the canal and access the East Coast may inspire a gradual eastward shift of U.S. supply chains. The impact of this shift on logistics real estate, through the creation of more complex supply chains, will be increased location alternatives for distribution and warehouse users.