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OM in the News: The Panama Canal’s “Fat Lane” and US Supply Chains

November 13, 2011

What do Warren Buffet, the Panama Canal, and products from Asia  to Wal-Mart  have in common?The Wall Street Journal (Nov.11, 2011) writes that they are all part of the complex calculus of changing  global supply chains. Right now, about 70% of US imports from Asia arrive by ship to the West Coast, with much of those goods transferred to Buffet’s Burlington Northern RR for transit to the rest of the nation.

But in 2014, Panama will rock the world of logistics with the opening of its new “fat lane”– a game changer  that  creates a threat to western ports and railroads. It takes about 18 days to make the ship and train journey from Asia to West Coast and then across the country. The all-water route through the canal takes 22 days. But the ship-to-rail route costs 10-25% more.

With the expanded Panama Canal, the Wal-Marts and Targets of the world are planning to ship more product to East Coast ports on huge ships that can carry 12,000 standard 20-foot containers–3 times the current capacity. This avoids labor strife in the past decade that clogged West Coast ports, and helps diversify  logistics systems. It has also triggered a raft of upgrades at East Coast ports to accommodate the bigger vessels.

The reaction from western ports:  Our speed of delivery and superior facilities will stem any loss of business. Many customers don’t want time-sensitive inventory sitting on ships traversing all-water routes. If your goods are stuck in the supply chain, they’re not passing the cash register. Besides, future ships (already being ordered) will carry 18,000 containers, which will not fit through the expanded canal.

But the Journal concludes that the expansion will be good for all ports. It will facilitate rising trade with Latin American for commodities, create round-the-world service by larger ships, and make the US logistics system more competitive globally.

Discussion questions:

1. How does the expansion impact East Coast retailers?

2. What are the OM advantages of the wider canal?

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One Comment leave one →
  1. November 13, 2011 5:15 pm

    My first thought upon reading this post was, “I think we need a ‘fat lane’ on the freeways and expressways for our overweitght commuters!” But, this post also revealed some critical issues that have long-term impacts for all of us. For example, one of the reasons that American retailers are looking for alternatives to the traditional water/rail distribution is the problem with labor slow-downs and strikes. Isn’t it fascinating that the average worker is so unaware of the impact of these actions? In a time when we need to be educating our workforce BEYOND the simple, technical aspects of a job, our government is waving the “business is bad” banners. Risk-takers take huge risks to produce wealth. Yet, one of their biggest risks is the workforce – the same people who are decrying the amount of wealth that risk-takers generate. Of course, our politicians, instead of educating people, fall back on the same old, tired slogans. I think it is time to require Congress to take an OM class.

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Andreas Wieland’s supply chain management blog for academics and managers

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