Will the persistent low water levels in the Panama Canal and ongoing attacks on ships bound to and from the Suez Canal wind up diverting international container traffic to West Coast ports?
Railroad executives think so, although most say a shift in international intermodal volume has yet to materialize. The drought in Panama has prompted canal authorities to restrict ship transits, while Houthi missile and drone attacks on ships in the Red Sea have shippers mulling sending Asian-made goods to the U.S. via the West Coast instead of through the Suez Canal.
“We’ve spent a lot of time looking at the global supply chains and the canals. … Right now in the near term, we haven’t seen any significant shift,” Kenny Rocker, Union Pacific’s executive vice president of marketing and sales, said on the railroad’s earnings call last week.
The railroad’s international partners have placed tariffs on shipments moving through the Panama Canal, so Rocker says UP has been working with customers on backhaul opportunities to give them more reasons to use West Coast ports instead of the canal.
BNSF Railway is hearing from its customers that they will be shifting some volume to the West Coast, spokesman Zak Andersen says. Some shift has already started to occur, he says, based on how U.S. West Coast containerized imports began to gain market share in the fourth quarter of 2023.
“Additionally, BNSF is seeing momentum with organic growth on our network as well, due to the quality of our service product and our capacity to grow,” Andersen says.
International intermodal has a smaller market share from East Coast ports due to the shorter hauls that favor truck moves to inland markets. If shipments that usually land on the East Coast via the Suez are diverted to an all-Pacific Ocean routing to West Coast ports, it could mean more volume – and in some cases longer hauls – for the Eastern railroads.
“We continue to monitor the evolving situations at both the Panama Canal and the Red Sea. To date we have not been significantly affected by any changes in our customer behavior, but we stand at the ready with the capacity and capabilities to adapt as needed,” CSX Chief Commercial Officer Kevin Boone said on the railroad’s earnings call last week.
It’s the same story at Norfolk Southern.
“We’re talking to our customers a lot about this … We haven’t seen any impact yet to our volumes,” Chief Marketing Officer Ed Elkins said on last week’s earnings call. “Fact is, our East Coast port volumes continue to be remarkably strong. And we are hearing customers start to evaluate their West Coast options, and that makes sense given some rather unprecedented things that are going on. But regardless, the great thing about our network is we’re well positioned to pick up that volume growth whether it comes in the East Coast or the West Coast.”
Canadian National Chief Marketing Officer Doug MacDonald said the railway has held discussions with its international intermodal customers about the canal disruptions.
“We’re starting to hear, with the different problems at both the Panama and Suez canals, that the West Coast is looking like a more viable option moving forward,” he said last week on CN’s earnings call. “We haven’t seen those volumes come in yet, but we’re expecting them to gradually ramp up if they do come.”
Canadian Pacific Kansas City Chief Marketing Officer John Brooks doesn’t expect the railway’s customers to increase the use of West Coast ports due to canal problems. An exception is the Panama Canal Railway, a joint venture between CPKC and Mi-Jack, that’s seeing increased volume due to low water levels.
Intermodal analyst Larry Gross expects the Panama Canal and Red Sea problems to push more container volume to West Coast ports.
“With problems at both the Panama and Suez canals, the direct move across the Pacific into the West Coast with intermodal beyond is looking better and better,” he wrote in his January Intermodal In-Depth report.
The Panama and Suez issues prompted Gross to raise his international intermodal forecast to 10.2% growth for the first quarter and 8.1% for the second quarter.
“The swing back to the West Coast should also provide domestic [intermodal] with some transloading tailwinds,” Gross says, although he expects most of the new West Coast volume will move inland intact in international containers.
Several cross-currents buffeted West Coast port volumes last year.
Vancouver and Prince Rupert, British Columbia, saw their volume fall during a July dockworkers strike. Their loss was a gain for the Northwest Seaport Alliance, which includes the ports of Seattle and Tacoma, Wash. North America’s biggest port complex – the ports of Los Angeles and Long Beach – saw their container volumes gain strength in the second half of the year after dockworkers voted to approve a new contract. To avoid potential disruption at L.A. and Long Beach, shippers had been diverting cargo to ports on the U.S. East and Gulf coasts.
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