Greater capacity of the channel will mean less going across the continent on wheels and more direct  shipments to major populations in the US Northeast

Greater capacity of the channel will mean less going across the continent on wheels and more direct shipments to major populations in the U.S. Northeast.

Panama Canal Expansion Promises Transport Cost Contraction

Companies like Goya Foods plan to take better advantage of rail as they source and supply in new markets.

The Panama Canal Authority shares three priorities with the shippers who send cargo through its locks: location, location and location. This triple-threat aspiration is at the core of the mission statement featured on its website:

"To produce the maximum sustainable benefit from our geographical position."

Evelio Fernandez can relate to that. As vice president of the Texas region for Goya Foods, his mission is to make best use of his plant's location at the Port of Houston so he can minimize transportation costs. Goya is a major importer and exporter, so transportation costs are a constant concern for Fernandez. That's why he is optimistically planning how his company will make best use of the Panama Canal once its expansion is complete in 2015. He's already using its proximity to his plant to Goya's advantage.

Timely Global Sourcing

This company brings products out of the western part of South America through the Canal. It also sources from Thailand and Vietnam, and although Goya uses the Port of Long Beach in California for that traffic, Fernandez has high hopes for what the newly expanded Panama Canal will mean for that piece of his business.

"With the expansion, and bigger vessels being able to cross the Panama Canal, there's thought that some of that cargo may come down into the Canal into the Port of Houston and that would benefit us in better times getting products to us," he says. "Timeliness is an issue, especially from Thailand because it's a long way and the port of Long Beach is very busy. Sometimes there are hiccups there and things get delayed. It would be ideal if at least some of it could come through the Panama Canal into Houston."

Fernandez has dealt with delays from that West Coast port before, most notably during the recent spate of labor disputes. Those made the Panama Canal expansion even more attractive for him.

"If we can avoid Long Beach that's a win/win," he adds. "More important than land transportation is getting it on time off the port due to the congestion there. Most of the cargo comes to us from there via rail, piggyback. That's been working fairly well but you can get 3-4 days delayed trying to line up rail service. We could shave 5-6 days or longer if the Panama Canal route were to open. It would be more efficient for the suppliers to ship that way. I'm not sure what the rates and charges will be, but if we can save 5-6 days I think it would be worth it."

Bigger Ships, More Products

Right now some 13,000 to 14,000 vessels use the Canal every year. It serves more than 144 maritime routes connecting 160 countries and reaching some 1,700 ports in the world. Fernandez says the expanded Canal's ability to accommodate bigger ships will mean more economical loads for the company.

"Sometimes containers out of Thailand get booked so we have to ship different loads in different vessels," he explains. "Using larger vessels could help us bring in more containers in the same vessel.  If we count Puerto Rico, we probably bring in 40% of the products we sell from outside the States."

Goya has an extensive line of products coming from South and Central America for which the suppliers are unwilling to change the delivery infrastructure. The same goes for coconut water, which comes out of Thailand and Vietnam.  The company receives six to seven containers a week from Ecuador and Colombia and as many as 50-60 at a time out of Thailand.

Goya is preparing to open more state-side facilities, however.  Right now Goya sources flour for its corn patties from Colombia but the company is building a manufacturing facility in the U.S. It also recently opened a new cannery in Brookshire outside of Houston, so more of the beans it packs at its cannery in Puerto Rico will be processed in Houston.

Rail Renaissance

Although Goya wants to minimize its ground travel as much as possible, it does see promise of significant savings in rail.
"When we can ship rail, we do," Fernandez says. "In fact we're bringing a rail spur into this facility in Brookshire and will receive a lot of our raw materials like bulk beans by rail. We'll also be shipping more by rail to the West Coast, and to Chicago, Orlando and Miami.

That will result in better freight rates. In the last few months we've experienced another hike in freight rates and a shortage of drivers and equipment. Rail is a good alternative. Although speed is critical, if you can work with longer lead times, and sometimes we're able to do so, we prefer rail because of much better rates, both inbound and outbound. In the food industry margins are lower and sometimes freight can be 20-25% of the product cost. You have to cut freight expense as much as possible."

That's especially important for Goya because it is constantly adding products and extending lines. Its DCs cater to different populations and some of its lines are produced for regional demands, but Fernandez says Hispanic populations are growing throughout the U.S. and even throughout the world. The company has export offices in Florida and in its New Jersey headquarters, which helps it chase business growth in Africa, Europe and China. The company isn't afraid to chase its most popular products as they migrate to new habitats either—like a certain variety of sardines seems to be doing.

"We used to buy them from the northern part of Ecuador, but now we're going south into Peru and will continue to go south to find that particular kind of sardine thanks to climate change," Fernandez says. "The water is warming in the northern part of the Pacific from Mexico down to Ecuador. That particular fish is moving south to cooler waters, and we'll continue to move south to find it."

In the meantime, experts following developments at the Panama Canal believe the 2015 expansion will enable many more companies like Goya to chase those cheaper transportation options.  Michael Gorman, professor at the University of Dayton's school of business administration (www.udayton.edu), spent ten years in systems development for BNSF Railway. He is also the founding president (and past president) of the INFORMS Analytics Section. He believes expansion of the Panama Canal will have a major impact on transcontinental U.S. freight movements.

"Greater capacity of the channel will mean less going across the continent on wheels (or below South America via oceanic shipping) and more ‘direct' (lower cost and faster) shipments to the major population areas in the U.S. Northeast," he concludes. "Essentially, we will have lower cost of delivery (and living) in some of the most populous areas in this country, and new international shipment patterns will affect total landed costs and speed for a huge sector of the international economy (US East Coast)."
 

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