Freight Rates Not Dropping as Expected After Panama Canal Expansion

Freight Carrying Ship on Panama Canal
Photo courtesy of Jacksonville Port Authority

Nine years and over $5 billion later, the Panama Canal expands for the first time in 102 years but what affect, if any, will it have on freight rates?

Exactly 102 years after its opening – vitally connecting the Pacific and Atlantic Ocean trade routes – the Panama Canal reopens to accommodate all but 176 vessels that operate in the world today.

Three weeks have passed since the Panama Canal opened its new, larger lock on June 26, and our home state of Florida welcomed the first ship to use the new expansion. But after the general carrier rate increase on July 1, have shippers really seen the decrease in ocean freight rates that they expected?

Unfortunately, the answer is no or at the very least not yet. And according to what we are learning from the various industry sources we follow, here are a few reasons why:

Freight rates will remain at the mercy of demand

Higher capacity and a significant cut in transit times could mean a lower overall price for freight transportation to the East and West coast ports; however, it ultimately depends on demand, fuel prices and intermodal transportation. Like mentioned, huge spikes in volume are not expected.

The East vs. West Coast ports dilemma

In anticipation of an increase in trans-Pacific shipment, U.S. West, East and Gulf coasts ports have been making moves to deepen and expand their waterways and improve rail and road connections from their docks.

While many experts and professionals believe the increased capacity will result in more imports through the East Coast, there’s just as many who believe the increase won’t be large enough to make a difference. Due to labor disputes in West Coast ports, there has been a slight shift from West to East already, but some analysts aren’t projecting severe shifts in volume. This is because of the current respite in global shipping and rock-bottom rates.

The obvious increased capacity of the waterway

Previously, Panamax ships (maximum size of ships that could move through the canal) had a capacity of 5,000 containers. The expansion allows for mega-sized ships that have nearly three times that capacity (14,000 containers) to make the trip. As a result of larger capacity, shippers importing products from Asia will find it’s cheaper to go through U.S. East Coast and Gulf ports compared to U.S. West Coast ports.

Has the canal expansion impacted your supply chain? Sound off in the comments below.