TIA Presidentís Letter: Panama Canalís Expansion No Guarantee For Smooth Sailing

5 July 2016

With the Panama Canal’s expansion recently completed, some believe it could lead to positive outcomes for the toy community. There may eventually be a positive impact, but let’s not break out the champagne just yet.

Here are some points where the Toy Industry Association (TIA) is, at best, cautiously optimistic:

1. East Coast companies can cease unloading at the West Coast ports and consequently avoid shipping across country by truck or rail.

That’s debatable. While it’s great that the canal will allow the safe and regular passage of larger ships able to carry up to 14,000 containers, ports on both coasts have struggled with similarly-sized vessels. In fact, only a handful of East Coast ports are equipped to accommodate these larger ships.

2. 14,000 containers per ship? That’s a lot of toys! These huge vessels can only benefit us.

Not necessarily. The West Coast ports are struggling to keep up with almost daily “mini-peaks” – congestion that occurs every time a ship docks to be unloaded. It’s like inviting 1,000 buyers through an exhibit hall designed to hold only 200 people. The aging infrastructure needs to be significantly updated to handle the larger ships in order to smoothly sort and process cargo from vessels to toy companies’ warehouses.

3. The toy industry will save on shipping costs.

The fees for transiting the Panama Canal are pretty high and it may be more cost efficient for some larger ships to take alternate routes to reach the U.S. Additionally, shipping costs have already been hovering around an all-time low partially due to low oil prices, so they can’t get much lower.

4. We’ll experience less seasonal backups, especially for the vital holiday selling season.

It’s certainly possible but it will remain a dream unless the port infrastructure can modernize and accommodate increased freight flow. TIA has voiced its concern about this issue to the federal government and at the ports as well. We have participated in special groups hosted by the ports of Los Angeles and Long Beach to keep an open dialogue about this topic. We have requested metrics to measure productivity to address the true “choke points” in the hopes of creating proper solutions. We’ll monitor how the Panama Canal’s expansion will impact this issue.

5. There will be reduced exposure to West Coast labor strikes.

Unless there is a change in the labor negotiating process – where our cargo is not held hostage by disagreements over contract terms – the toy industry will always be vulnerable to labor disputes at ports on both coasts. The ports of Los Angeles and Long Beach are entry points for about 50 percent of our industry’s cargo and are also crucial locations for many other industries, and will remain as such for the foreseeable future. East Coast ports have had their own labor issues in the past and may experience them again.

TIA’s Credit Daily Bulletin shared an informative article that also explores both sides of the story.

So that’s my take at the moment. As always, feel free to contact TIA staff with any concerns or thoughts on this or any other matter.

Steve Pasierb

President & CEO


Follow me @StevePasierb

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