What is the most competitive interoceanic route for the Asia – US East Coast transpacific trade?

As a Global Transport & Logistics professional my quick answer would have been the Panama Canal. However, there are other options. Routing via North America West Coast ports over an expensive land bridge would be the fastest. The other option, via the Suez Canal will result in the longest navigation time yet not the most economical. There is one more option that is not very well known and could be as competitive, if not more, than the Panama Canal.

The 50-mile stretch has been recognized as one of the seven wonders of the modern world and a vital component for the expansion of global trade. In 2019 there were 2,575 container vessel transits with Asia and US East coast trade accounting for 61% of the total cargo transported. For 106 years the Panama Canal has been vital for the expansion of global trade. Before the US started construction of the Panama Canal in 1904, there were other options considered, options that were geographically closer to the main trades. One of them was the Isthmus of Tehuantepec in Mexico. The Tehuantepec route, despite it being used for transport of goods and mail by the US in the second half of the 19th century, lost appeal once the Panama Canal was up and operating in 1914.

The Isthmus of Tehuantepec stretches 124 miles at its narrowest point. Today the land-bridge connects the Pacific Ocean port of Salina Cruz with the Atlantic port of Coatzacoalcos by a railway. It is one of the largest port infrastructure projects of the Mexican Government.

Is the Mexico land-bridge competitive for the Asia-US East Coast and Gulf Transpacific Trade?

In order to determine the competitiveness of the Tehuantepec route, we have to determine the geographical advantage, the potential cost savings and the container shipping market trends.

Geographical Advantage

The voyage from Hong Kong to Savannah is 10,828 NM long. At a glance, there is a geographic advantage reducing over 1,500 NM. Eliminating transit to Panama and using an alternate routing via Mexico would lessen sailing time by at least 5 days. Utilizing the current ocean services, we can consider an interoceanic transfer by rail in under 24 hours. This alternate routing would require minimal investment due to the current operating services. This option will require 2 inducement calls, one in the Pacific and one in the Atlantic, to transfer the cargo.

Potential Cost Savings

Time is money. Lessening navigation days provide savings. In addition to these savings, by omitting the Panama Canal container vessels can save up to one million dollars in tolls per transit. This method enhances utilization of Latin America focused services making it an attractive business case.

Container Market Trends

As we all know, the final destination of the imported cargo is not the port. The final destinations are the Metro Areas in the US connected through an intermodal network. Herein lies the importance of cost efficiency. The shorter the rail transit, the most cost effective the inland transit can be.

The true geographic advantage of the Tehuantepec route is the effective connectivity of Asia to US Gulf Coast. These ports serve markets that are far from the west coast and far from east coast ports.

In 2020 we have seen prioritization of fast transpacific services to the west coast. The SCFI has reached record high ocean rates of $3,400/FFE in August. Carriers command a premium for fast services to the US West Coast that connect to a costly intermodal service for central US destinations.

Considering the geographic advantage, the potential cost savings and the container market trends of 2020, the Tehuantepec Isthmus Route can be a very competitive transpacific option for ocean carriers looking to serve End-to-End destinations in the US.

To know more about the Tehuantepec Isthmus and the land bridge project, contact KUNAN Consulting. We have been awarded the commercial viability research by the Mexican Government.

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