Source: TEU figures from American Association of Port Authorities. Equivalence lines from WorleyParsons and Princeton Consultants, Inc. Rates from Drewry Shipping Consultants. Note: The rate benchmarks are for full container loads and include the base ocean rate, the terminal handling charge both at origin and at destination, the fuel surcharge and all other surcharges; they do not include inland transport costs.
Shipping Rate from Shanghai to Selected North American Ports for a 40 Foot Container, Mid 2010
The cost structure of transport chains is an important determinant in the comparative advantages of routing options to service the North American market. Maritime shipping companies usually adopt a "four corners" strategy, implying that they will service a port in the Northwest (e.g. Seattle, Tacoma, Vancouver), in the Southwest (Los Angeles / Long Beach which is almost an obligatory port of call for transpacific services), in the Northeast (e.g. New York, Hampton Roads) and the Southeast (e.g. Savannah, Miami). For cargo originating from the main manufacturing centers of Pacific Asia, there are several options to service the American East and Gulf coasts, including the landbridge, the usage of the Suez Canal, or the all-water route through the Panama Canal. For several ports there are significant differences between the inbound and outbound traffic. The pattern for inbound traffic is straightforward and a function of shipping distance; the lowest among the sample being Vancouver and the highest being Montreal at the opposite end of the all-water route (compounded by a significant detour through the St. Lawrence).
The container shipping rates for outbound traffic differ with shipping distance playing a much less evident role. They are more reflective of trade patterns, particularly of export opportunities in the port’s hinterland. Where inbound flows are significant and where return cargo is proportionally scarcer outbound rates are much lower as shipping companies try to attract backhaul cargo by discounting. The greatest paradox concerns New York and Vancouver. While, as expected, the inbound rate per TEU is 60% higher for New York than Vancouver, the outbound rate is 15% cheaper for New York. The availability of empty containers along the East Coast, as exemplified by New York, could expand export opportunities with the Panama Canal expansion. A significant change could involve a shift in the maritime ranges that are using import-related supply chains that are less time sensitive.
With the expansion of the Panama Canal, the expected lower transportation costs of the all-water route are likely to have an impact on the cost equivalence line. The line represents the theoretical point of indifference between using the landbridge or the all-water route. Under a specific set of parameters related to bunker prices, the usage of panamax ships and canal toll rates, the current (pre expansion) cost equivalence line is an axis roughly between Houston and Detroit. This accounts for about 46% of the American population. By keeping these parameters constant but benefiting from the economies of scale of post-panamax ships, the cost equivalence line shifts further inland along the Chicago – Nuevo Laredo axis, which accounts for 63% of the American population. However, such an assumption is contentious because it is uncertain how the cost benefits derived from the expansion are going to be allocated. First, the Panama Canal Authority will try to capture as much revenue as possible through higher tolls. Second, maritime shipping companies will try to keep the benefits derived from economies of scale by keeping similar rates. Third, freight forwarders (importers and exporters) will also try to capture some of the cost benefits resulting from the expansion.