America’s supply chain is heading east despite its deep history on the West Coast. Many point to the Panama Canal expansion as the cause of the shift, but a network of ports and distribution centers throughout the East Coast region have been quietly stealing market share from the West Coast long before construction of the canal was complete. To understand how this occurred, let’s examine this shift through the lens of a business executive.
Like many businesses, success of the supply chain industry is largely dependent upon operating costs and profit margin. When you encounter inefficiencies in the supply chain, where high volumes of goods are transported from ports to distribution centers, the slightest incremental cost can impact profit. As the West wrestled with labor disruptions, increasing environmental regulations, and trucking delays to and from the ports, West Coast port shippers, retailers, and users sought alternative options. They discovered the East offered an infrastructure that provided greater efficiencies and affordability to reduce costs and meet current and future business needs. It was an infrastructure that maximized the use of rail in addition to trucking to support the supply chain and provided better access to the primary e-commerce hubs.
East Coast Advantages
One of the greatest advantages of the East is its vast rail and intermodal network. Five of seven Class 1 railroads move through the Southeast and Midwest, and 85 percent of the U.S. intermodal infrastructure resides in the East, Southeast, and Midwest regions. This allows companies to more quickly transport goods to their final destination.
East Coast ports, already in the process of dredging deeper waters, continue to heavily invest in technology and automation in other areas of the port. Robotic gantry cranes and an electronic administrative process — technological advancements not common on the West Coast — allow more container shipments to be handled through East Coast ports. In fact, since 2010, East Coast ports have experienced greater container growth — averaging 98,000 more containers per year than the West Coast over the past six years — according to data firm CoStar. Importantly, the skilled labor force required to operate this high-tech machinery is also more readily available and cost-effective in the East.
Additionally, electricity is often 25 to 40 percent less expensive on the East Coast. And, businesses can be assured that the supply chain will remain efficient, regardless of external factors, as there is redundancy. If a natural disaster or accident impacts a port or rail system, there are other ports along the East Coast for a retailer, wholesaler, or distributor to access and avoid interrupting operations.
E- Commerce Trends
Looking toward the future, the East Coast is well positioned to support the growing e-commerce trend. The appetite among Americans for online shopping is still in its infancy, but by 2020, Forrester projects e-commerce sales will exceed $500 billion. With an estimated 70 percent of the U.S. population living east of the Ohio and Mississippi rivers, constructing a supply chain along the East Coast to meet e-commerce demand makes good business sense. The modern rail and intermodal network provides a relay system to easily move products from ship to rail to truck to e-commerce fulfillment centers, an infrastructure that does not exist on the West Coast.
When you consider the overall business climate, lower utility costs, and highly skilled workforce, in combination with the existing infrastructure and the fact that major delivery service companies — e.g., Amazon, FedEx, and UPS have major e-commerce fulfillment centers in the East — it’s easy to understand why companies will continue looking to this region to expand their supply chain.