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The Panama Canal Expansion: A Threat To SoCal Jobs?


Together, the Ports of Los Angeles and Long Beach handle approximately 40% of all inbound containerized trade entering U.S. seaports. The vast majority of the goods in those containers are bound for markets outside of Southern California. Servicing the movement of those goods to their final destinations is a huge logistical complex that features railyards, trucking depots, warehouses, distribution centers, and transloading facilities, and that reaches from the ports into the Inland Empire and San Joaquin Valley.

The expansion of the Panama Canal has been viewed as a threat to the jobs of hundreds of thousands of Californians whose employment is linked to the movement of goods through Southern California's seaports. By some accounts, the opening of an expanded channel through Panama could result in as much as 25% of the containers currently moving through the Ports of Los Angeles and Long Beach being diverted to other ports.

While we at Beacon Economics expect that some diversion of transpacific trade away from the Ports of Los Angeles and Long Beach will occur following the opening of the new set of locks in Panama in the third quarter of 2015, we do not believe it will be nearly as damaging to Southern California's logistics sector as some have portrayed.

Forecasting future container traffic through the Ports of Los Angeles and Long Beach is a multivariate task for which there is currently a lack of numbers to do the math. Until the Panama Canal Authority releases its schedule of transit fees sometime next year, it will be impossible to calculate the extent to which shippers might be encouraged by lower direct shipping costs to divert transpacific trade away from the Ports of Los Angeles and Long Beach.

Even then, shippers' decisions on whether to utilize the Canal route will hinge on a number of considerations beyond simple point-to-point shipping fees. For example, while an importer may indeed save on the cost of shipping a container from Shanghai to Savannah via the Canal, the fact that the all-water route to Savannah would likely mean the goods would be in transit for at least one week longer than had the same goods been shipped by sea and train via one of the Southern California ports, must be factored into routing decisions. In particular, shippers requiring time-sensitive deliveries or who are importing perishable products or high-value goods may continue to find the Southern California ports a more attractive port-of-entry than all-water routes to the Gulf and East Coasts.

It should also be emphasized that the Panama Canal is a two-way street. Shipments of goods bound for West Coast markets that originate in Europe, Africa, or the east coast of South America, and that are currently offloaded at East or Gulf Coast seaports for overland transportation, will be able to reach Western U.S. markets more directly via the Canal. 

Finally, there are three longer-term considerations to weigh when discussing the future of shipping through the Ports of Los Angeles and Long Beach. First, other seaports along the West Coast, including ports in Mexico and Canada, are aggressively seeking to increase their shares of transpacific trade. So the competition for cargo is not coming solely from Panama. Second, any significant shift in the location of low-cost manufacturing operations away from East Asia and into the nations lining the Indian Ocean (or as far as Africa), will likely mean a decline in the volume of goods being shipped to North American markets across the Pacific. Goods originating in nations west of Singapore would probably be shipped to U.S. markets via the Suez Canal.  Third, any significant reshoring of manufacturing operations previously off-shored to China and other East Asian nations will likely affect import volumes moving through the Southern California ports.

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