Better Your Business

Panama Canal is about to transform world trade again

A century after transforming global trade and markets, the Panama Canal is about to revamp world trade once again. On June 26 the canal is scheduled to reopen after a massive project costing more than $5 billion that will allow bigger ships to pass through the 102-year-old waterway, doubling cargo capacity.

U.S.-based businesses are recognizing the new growth opportunities. Many logistics experts predict the expansion of the so-called Panamex may shift international trade routes, allowing ships to reach Asia from the U.S. Gulf Coast more than two weeks faster than going east through the Suez Canal.

In anticipation, companies have transformed their infrastructure and increased foreign operations. According to the Bank of America Merrill Lynch 2016 CFO Outlook, 61 percent of companies report they will have some foreign market involvement this year, with 48 percent buying from foreign markets, 41 percent selling to foreign markets and 21 percent having operations outside the United States.

Companies must understand that the Panama Canal will affect more than the speed of shipments from city to region, to West to East coasts or across the globe. Whether it's a major Florida port, a small transportation company or a perishable-cargo handling company, businesses should buckle up for the significant changes that will come with the new and improved Panama Canal.

The aging Panama Canal had a limited capacity and was constrained by the trend toward larger vessels and the growth of international trade.
Justin Solomon | CNBC
The aging Panama Canal had a limited capacity and was constrained by the trend toward larger vessels and the growth of international trade.

Here are four ways business owners could benefit from the Panama Canal sea change.

1. There will be a key logistical shift to the eastern United States.

According to the U.S. Department of Commerce, there could be a 10 percent shift in containers traveling into the United States from the West Coast to East Coast ports. Beyond analyzing the expansion of ports that will accommodate this influx of containers, businesses must have a pulse on the intermodal system as a whole. This includes moving discretionary cargo throughout the Eastern regions of the United States, ensuring the right cranes and upgraded equipment are available and enlisting more stevedores and securing warehouse space to handle a larger quantity of containers.

From a local level, the largest ports throughout Florida — from the Port of Miami and Port Everglades to the Port of Jacksonville and Port Tampa Bay — are geared up for this expansion. Companies in these regions should establish efficient intermodal logistics centers that create a seamless process of moving containers from the ship to other modes of transportation in order to push the company's product throughout the United States.

2. Potential savings can be identified in new routes to market.

It comes as no surprise that over the past year, there has been a huge increase in logistics and warehousing companies in the state of Florida alone. But the expansion of the canal will also give rise to new niche players just by minimizing transportation time from warehouse to consumer.

For instance, Flagler Global Logistics, a perishable-cargo handling company, will be giving blueberries a fresher name. While the company has historically transported fresh blueberries on steamships from South America through Philadelphia on trucks and then driven down to Florida, because of the Canal expansion, the blueberry shipments can now be brought in and fumigated directly through Florida, making their way to your grocery store one week earlier. This will increase their lifespan and freshness and save an estimated $3,500 in transportation costs per shipping container.

Hundreds of construction workers lined the sides of the new lane of the Panama Canal to watch the first ship, a post-Panamax ship pass through.
Justin Solomon | CNBC
Hundreds of construction workers lined the sides of the new lane of the Panama Canal to watch the first ship, a post-Panamax ship pass through.

3. Dramatic shifts are taking place in the energy cost equation.

The commodities space will experience change due to the expansion. In Florida the Panama Canal creates a model where companies can move natural gas to the Americas and the Caribbean islands. And the cost of moving containers internationally has fallen dramatically — for instance, the average box rate from China being shipped to the United Sates four years ago was priced at $1,336, while today it's approximately $640, according to the May 2016 Shipping Market Review report.

4. Southeastern states are becoming business meccas.

The Panama Canal will be a solution for Florida-based businesses that are looking to move goods overseas as inexpensively as possible. For this reason, companies in the region should also consider the benefits related to Free Trade Agreements. Data has shown that international trade has increased for states in this region, including Florida, within countries where Free Trade Agreements have been implemented.

Many Southeastern states, including Florida, Georgia, Virginia and South Carolina, have made infrastructure investments in preparation for receiving anticipated mass cargo shipments. This includes deepening their harbors, making key terminal expansions, improving road access and rail capacity. The surrounding markets will experience a rise in new industries, more opportunities for growth when it comes to international expansion and improvements in companies' intermodal systems that better streamline transportation processes.

By Doug Davidson, market executive, Global Commercial Banking at Bank of America Merrill Lynch