How Panama Canal’s revolutionary expansion is impacting Virginia’s port

Approximately 4,240 miles from Norfolk, the Panama Canal has spent the past few years undergoing a $5 billion expansion. The expanded canal, which opened officially on June 26, now allows bigger ships to pass through the 102-year-old waterway, doubling cargo capacity. Despite the distance, the canal expansion is having direct impacts on coastal ports across the United States, especially in Virginia.

Around the world, and in the U.S., businesses immediately recognized the new growth opportunities from the expanded canal. Many logistics experts predict the expansion will shift international trade routes, allowing ships to reach Asia from the U.S. more than two weeks faster than going east through the Suez Canal.

In anticipation, companies along the East Coast 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, from West to East Coasts or across the globe. Whether it's a major Virginia port, a small transportation company or a perishable-cargo handling company, businesses have been preparing for the significant changes that will come with the new and improved Panama Canal.

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

1. Virginia is prepping for the key logistical shift to the Eastern United States – businesses should as well.

Research shows that as a result of the Panama Canal expansion 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.

Leaders throughout Virginia already know that transportation shifts will impact the area, specifically along the Interstate 95 corridor in the Northern part of the state. In July, Gov. Terry McAuliffe announced that Virginia’s “Atlantic Gateway Project,” a $1.4 billion project to transform road and rail infrastructure, was approved to receive a federal grant for part of the funding. The project will improve travel for people and commerce not only through Virginia, but also from Florida up to New York, along important Eastern coastal areas of the country. As more goods come in through Virginia’s ports, these types of structural improvements are vital to ensuring that the community can accommodate larger amounts of shipped goods.

From a local level, the Port of Virginia’s largest terminal, Norfolk International Terminals (NIT), is gearing up for its own $350 million facelift. The expansion will boost NIT’s capacity 46 percent. 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 as efficiently as possible. The project will take place at the same time as a major expansion of Virginia International Gateway, a high-tech marine terminal that the port recently signed a 50-year lease to operate. That $320 million project will nearly double VIG’s capacity.

2. Take advantage of the dramatic changes in the shipping and handling processes

The commodities space is experiencing positive change due to the expansion, and the process of shipping and handling cargo is rapidly changing. CFE Equipment Corp., a material handling equipment leader based in Virginia, is one of the many clients experiencing positive impacts from the port’s continued growth. “One interesting trend, which comes as a result of these larger vessels traveling through the canal is that the size of loads, such as pallet weights, has increased, giving rise to the need for larger capacity lifting equipment to handle the larger cargo,” says Tony Sessa, President of CFE Equipment Corp. 

As seen through their role in the specialized industry of materials handling, the growth in port activity as a result of the expansion has important implications for CFE Equipment. “There are both direct and indirect implications. As an active supplier of equipment and supports services to many of the port organizations we have been able to directly benefit by providing additional equipment, such as forklifts and container handlers, to the port, and providing maintenance and repair service on that equipment we will see opportunities for growth on the port.,” Sessa continued.

3. Virginia and other Southeastern states are becoming business meccas.

Given the uncertainty of trade deals, businesses should be aware of potential changes in trade agreements and policy, but also leverage the new business opportunities that the Panama Canal brings. The canal will be a solution for Virginia 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 trade agreements. Data shows international trade increased for states in this region, including Virginia, with countries where free trade agreements have been implemented. 

Sessa added, “The growth in product flowing through the Virginia ports could give rise to more distribution facilities being established in the Tidewater area, where incoming shipments can be broken down for reshipment throughout the country. This expansion in re-distribution hubs can have an even more positive impact on our business, and the local communities, as the demand for handling equipment and labor can grow exponentially.”

Many Southeastern states, including Florida, Georgia, Virginia and South Carolina, have made infrastructure investments in preparation for receiving anticipated mass cargo shipments. In addition to NIT’s highly anticipated port updates, the Port of Virginia and other Southeastern ports have undergone infrastructure improvements including 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.

Brian Rountree is market manager, global commercial banking at Bank of America Merrill Lynch.