China Syndrome.

Growing Asian trade is packing the Panama Canal with goods headed for the U.S. East Coast.

A LITTLE MORE THAN A YEAR AGO, things were looking a bit bleak for the Panama Canal. Drought restricted the size of the ships the canal could handle. Shipping lines threatened to skip the waterway because of a rate increase for passage. And some U.S. hardliners, fearing the Chinese would take over the gateway, questioned whether to hand over the canal to its Central American home country.

Well, the Chinese are coming--and there could be no better news for the canal. Even before the U.S. Congress signed the historic legislation to boost trade with China, shipping lines were crowding the canal with Far East vessels making their way to the eastern seaboard of the United States. "Without a question, there will be more trade going through the canal going directly to the East Coast of the United States," says Tony Hupfeld, senior vice president for Kawasaki Kisen Kaisha, or the "K" Line, one of the shipping lines increasing its service through Panama.

There are three ways to get cargo from Asia to the U.S. East Coast--the all-water route through Panama, transit via the Suez canal, or a combination of ocean and rail shipping using the U.S. West Coast train and port connections. But reduced shipping rates--in combination with U.S. rail service problems and West Coast labor unrest--have made all-water shipping fashionable again. And, because of the emerging shipping networks and trade flows, the Panama Canal is the logical logistical choice for ships from China or the Far East. "All the major carriers will be going this route," Hupfeld says.

The China Ocean Shipping Company and European stalwart P&O Nedlloyd, among other major worldwide shipping lines, are also increasing or adding Panama Canal service. "We've been seeing the interest growing for some time now," says Mercedes Morris, a canal spokeswoman.

But, about three years ago, a combination of rail congestion and railroad merger snafus began holding up eastbound cargo on the West Coast during peak shipping seasons. West Coast waterfront strikes and other labor problems slowed the cargo even more. Shippers and shipping lines griped--and began looking for alternatives.

Asian invasion. The incursion into Panama is fueled by the incessant growth in U.S. imports of Asian goods, most of which are headed for the distribution centers of the major retailers like Wal-Mart, K-Mart and Home Depot, located on the U.S. East Coast. But the question is how the shipping lines get those goods there. Decades ago, the only practical way was an all-water route such as the Panama Canal, which took three to four weeks. Then the U.S. rail companies developed sophisticated and reliable "land-bridge" networks that made it possible to dock the cargo at the Atlantic seaboard in half the time. By the late 1990s, the West Coast ports were unloading up to 85% of the Asian imports, no matter what the final destination.

They found them on the all-water routes where cargo volume rose 65% between 1993 and 1999, to 979,000 20-foot boxes, according to PIERS, the Port Import-Export Reporting Service of New York.

At the same time, Asian shipping patterns have changed. It used to be that shipping lines liked to carry South Asian cargo west through the Suez Canal to combine with their Mediterranean service. But now more goods are arriving from China and northern Asia--and shippers are finding it easier to take cargo from northern Asia through the Panama Canal. According to the Port of New York and New Jersey, overall Far Eastern trade increased nearly 20% last year, while Southeast Asia trade grew by only 11%.

"It all depends on where you call in Asia," Hupfeld says. "For North Asia and Hong Kong, it's better to go through Panama."

ALL CHOKED UP

The extra cargo from Asia going to the U.S. East coast is adding to delays in the Panama Canal, already backed up by maintenance work. Capt.Johan Bjorksten, who handles operations and equipment for Germany-based Hamburg-Sod, one of the major shipping lines using the canal, reports that his company faces long delays going through the canal--even after booking a year in advance and paying three times the normal passage rate.

While the Panama route may take twice as long, most cargo traveling this circuit is not time sensitive and can be shipped for about US$500 per box--less than half the cost of sending it via the U.S. West Coast and rail." It really is a matter of cheaper costs," Hupfeld says." The port labor is cheaper using Panama and the East Coast, and you don't have to pay the high intermodal costs."