Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the U.S. East Coast may bypass Warren Buffett's $33.8 billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea.

The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east.
That could save exporters 30 percent, the canal operator said.

The $5.25 billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.'s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje, a shipbuilding analyst at Mirae Asset Securities Co. in Seoul.

"It is inevitable that railways, such as Burlington Northern, will lose some of their cargo once the Panama Canal is expanded," said Jee Heon Seok, a shipping analyst for NH Investment & Securities Co. in Seoul. "Many more containers can be moved in a single voyage on a ship than going through the West Coast ports."

Eoin Treacy's view The Transportation section has been led by rail and trucking companies for much of the last year but sea freight companies have attracted increased interest of late. The Baltic Dry Index which is representative of the rates shipping companies can charge, bottomed in late 2008 and has sustained a progression of higher reaction lows since. These would need to be taken out to question to scope for further higher to lateral ranging. (Also see Comment of the Day on January 15th).

Shipping companies have been among the best performers year-to-date in the Danish market where they also have a high weighting. The KFX Index has so far sustained the breakout from the 5-month range and a sustained move back below 330 would be required to begin to question the consistency of the medium-term uptrend. Danish shipping companies such as Maersk, DB Norden and Dampskibsselskabet Torm have been among the best performers internationally and are among the leaders in the sector. Provided the progressions of higher reaction lows are maintained, the upside can continue to be given the benefit of the doubt.