Panama Canal expansion to cut China shipping costs

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Jan 2010

Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the US East Coast may bypass Warren Buffett’s $33.8-billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea.
The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east. That could save exporters 30 percent, the canal operator said.
The $5.25-billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.’s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje, a shipbuilding analyst at Mirae Asset Securities Co. in Seoul.
“It is inevitable that railways, such as Burlington Northern, will lose some of their cargo once the Panama Canal is expanded,” said Jee Heon Seok, a shipping analyst for NH Investment & Securities Co. in Seoul. “Many more containers can be moved in a single voyage on a ship than going through the West Coast ports.”
China, poised to overtake Japan this year as the world’s second-biggest economy, may boost exports by 20 percent during the first quarter as the global economy recovers, according to Macquarie Securities Ltd. and Royal Bank of Scotland Group Plc.
China Cosco Holdings Co., Asia’s biggest shipping company by market value, and 14 other container lines said Jan. 14 they expect a “significant” increase in transpacific cargo this year on rising US consumer sentiment.
That prospective growth spurred Berkshire to pay $26 billion for the remaining 77.4 percent of Fort Worth, Texas-based Burlington Northern it didn’t already own. Buffett, the Berkshire chairman, said the largest US railroad will benefit from “moving around more and more goods.” The acquisition is pending and expected to be completed by March 31.
Burlington Northern customers in Gulf of Mexico ports – including Houston and Galveston, Texas – may benefit from more traffic going through a wider canal.
Buffett didn’t respond to a request for comment. A Burlington Northern spokeswoman, Suann Lundsberg, said trains deliver cargo from the West Coast to the East Coast as many as nine days faster than ships using the canal.
Rail traffic is expected to continue growing, although probably at a slower rate than in the past, Lundsberg said.
“We know he doesn’t make short-term investments,” Art Wong, spokesman for the port in Long Beach, California, said of Buffett. “He must be making it because he thinks it’s a great long-term investment.”

Source: Manila Bulletin