Posted December 12, 2019
The shift of container shipping services toward U.S. East and Gulf Coast ports and away from West Coast ports is far from over, according to industry veteran John McCown, founder of Blue Alpha Capital and former CEO of liner company Trailer Bridge.
During a discussion presented by investment bank Stifel on Dec. 6, McCown noted that the East/Gulf Coast share of container imports among the top 10 U.S. ports has risen from 43% in 2015 to 47% this year. “I see that trend continuing to play out,” he asserted.
Panama Canal plus U.S. population
Two factors are fueling the transition: the larger locks of the Panama Canal, which opened in June 2016, and location density of the U.S. population.
“Ships [serving the East Coast] are now 58% larger than they were [prior to canal expansion],” he said. “That’s changed the economics of moving all-water to the East Coast. What used to be a really meaningful difference in the size of ships [calling at the West versus East Coast] has been fully mitigated. The ships are now the same size.
“The cost of moving freight by water is geometrically less than moving it by land,” he continued, estimating that it costs less than a $0.05 per 40-foot-equivalent unit (FEU) per mile (FEU-mile), versus “easily $2 by truck and close to $1 by rail.”
Ocean transport allows shippers to more cheaply move cargo to where their buyers are. “If you look at the density of the U.S. population relative to the coasts, it’s simply a closer distance to the U.S. East and Gulf Coasts – 76% of the population is closer to these coasts than to the West Coast,” he said.
“I don’t think it’s going to swing quite that far,” he added, referring to the current 53-47% West versus East/Gulf Coast split. “But we’ve been seeing a swing of 80-90 basis points [0.80-0.90%] per year in that direction [i.e. away from the West Coast ports] over the past three or four years and that will continue for a multi-year period,” McCown predicted, noting that Long Beach, California and Seattle/Tacoma, Washington have been particularly hard-hit by the coastal transition.