"Build It and They Will Come"

It's East Coast versus West Coast ports in the battle for Panama Canal traffic. Will there be enough cargoes to go around?

Construction Area with Train

By Tony Munoz 2014-12-23 10:04:10

(Article originally published in July/Aug 2014 edition.)

The Panama Canal was the most expensive American public works project of its time in 1914 with an estimated cost of $302 million. The U.S. took over the project from France, which began it in 1881 and withdrew in 1889 due to engineering problems and high mortality rates from disease. It’s estimated that more than 22,000 people died during the French period.  

While the unfinished canal sat idle, the Walker Commission under President McKinley favored a new canal in Nicaragua. But that all changed when McKinley was assassinated on September 14, 1901 and succeeded by Theodore Roosevelt.

President Roosevelt was a firm believer in the strategic vision of Admiral Alfred Thayer Mahan, who expounded in his 1890 classic, The Influence of Sea Power upon History, that supremacy at sea was essential for the nation’s commercial and military strength. He had no doubt that, by completing the canal, the U.S. would have tactical superiority over the oceans surrounding its coastlines.      

About 56,000 workers were employed by the U.S. from 1904 until August 15, 1914, when the canal opened. During the ten years of construction 5,609 workers died from accidents and disease, but the achievement of opening the 48-mile (77 km) canal through the Isthmus of Panama forever changed ocean transportation by eliminating the need to sail around Cape Horn to get from one ocean to the other. 

The New Canal – Too Little, Too Late?

The Panama Canal today handles about five percent of the world’s cargoes and serves about 140 trade routes connecting 80 countries. Modernization projects completed in 2001 increased traffic by a third. But as container ships grew ever larger, the Canal found itself losing out on traffic from China and other countries in Asia that offloaded at West Coast ports or used the Suez Canal to get to East Coast ports. 

In 2008 the Panama Canal Authority began its $5.25 billion expansion project to construct locks 1,400 feet long, 180 feet wide and 60 feet deep. It is also adding a third traffic lane, which will speed up transit times. The new canal will be able to accommodate 12,500-TEU container ships and bulkers transporting up to 140,000 metric tons of cargo. When the canal opens late next year or in early 2016, trade lanes will change and cargoes are expected to double. The big winners are expected to be container ports on the Gulf and East Coasts. 

The Transpacific Stabilization Agreement (TSA) is a forum for container shippers offering eastbound services from Asia to the U.S. There are 15 members including Maersk, Mediterranean Shipping Lines (MSC), CMA CGM, China Shipping, China Ocean Shipping (COSCO), Evergreen, NYK Lines and OOCL – in other words, all the big players. And they are all building Ultra Large Container Vessels (ULCV) ranging from 14,000-19,000 TEUs for the Asia-U.S. and Asia-Europe trades – too big to fit through the new Canal. 

With more than 60 new ULCVs entering the international trade markets in 2015 and 2016, will the Canal have an impact at all on containerized cargoes?

The Race Is On!

Shipping experts say it’s about 30 percent cheaper to bypass West Coast ports in favor of transiting the Canal and discharging cargoes at East and Gulf Coast ports. But ports along the West Coast are not worried. They can already accommodate 14,000-TEU ships that are too big for the Canal and will soon be able to handle ULCVs drafting 50 feet or more. 

“The demise of West Coast ports has been greatly exaggerated,” said Port of LA spokesman Philip Sanfield. “Ultimately, retailers will make the final decision about how best to move their goods. Meanwhile, we have adapted to the challenges presented by the Panama Canal and other ports by investing in our port and forging business relationships around the globe.”

Lee Peterson, spokesman for the Port of Long Beach, added: “Long Beach has already handled 14,000-TEU ships. In 2015, the Middle Harbor will be able to handle 18,000-TEU ships. With $4 billion in infrastructure investments taking place, including warehouses and distribution centers, shippers can easily reach any market in the U.S.”

According to government statistics, 90 percent of all cargoes entering the U.S. come by water, but 30 percent of the ships are constrained by inadequate channel depths. To remedy the problem, U.S. ports will invest about $46 billion through 2016, says the American Association of Port Authorities (AAPA). Ports will contribute $18.3 billion of the total for marine infrastructure upgrades, while private sector entities will invest $27.6 billion on properties within port complexes. The AAPA adds that Gulf Coast ports will spend the most with a total of $22 billion in capital expenditure projects. 

The Texas Department of Transportation commissioned a study to assess the opportunities that might be derived from the expansion of the Panama Canal. It found that its five ports -- Houston, Corpus Christi, Beaumont, Texas City and Galveston —account for 20 percent of total U.S. port tonnage and generated $277.6 billion in economic activity to the state.

“The primary advantage is our geographic location in relation to the Texas Triangle’s population centers, which include San Antonio-Austin, Dallas-Fort Worth, and Houston,” said Stan Swigart, Market Development Manager for the Port of Houston. “The port is self-funding the dredging of the Bayport and Barbours Cut container terminals to 45 feet for about $80 to $100 million and upgrading both terminals to efficiently handle post-Panamax vessels.” 

Meanwhile, Florida is just 1,162 miles from the Canal and is the only state to border the Atlantic Ocean and Gulf of Mexico. Over the last two years, the state has appropriated $17 billion, the largest amount in its history, for roadway and bridge improvements. The state will provide its ports about $140 million for improvements, but they must match the funds received.

PortMiami is undergoing a $2 billion expansion project, which includes dredging its channel to 50 feet. “Our port is the first U.S. port from Panama,” said Bill Johnson, Director of PortMiami. “Deeper channels mean shippers have new options for all-water routes from Asia to the East Coast, and we intend to benefit from the new opportunities.”

Just 27 miles north of PortMiami is Florida’s leading container port and the 17th largest in the nation, Port Everglades. It recently opened an onsite Intermodal Container Transfer Facility in partnership with the Florida East Coast Railway. The facility will speed cargoes to the rest of Florida and, by connecting with the national rail network in Jacksonville, to the entire Southeast as well.

“Port Everglades will continue to add new cargo berths and super-Panamax cranes to accommodate larger ships,” said Port Director Steve Cernak. “The port’s new global gateway is ready to capitalize on the Panama Canal expansion.”

Across the state is Tampa Bay, part of the ninth largest metroplex in the U.S. with eight million people within 100 miles of its port. The Tampa-Orlando corridor is the fastest growing region in the nation, and Florida will soon pass New York to become the nation’s third largest state behind California and Texas. 

“The Executive Shippers Council and our partners at the ports of Houston and Mobile have a marketing initiative called the Gulf Coast Advantage,” stated Karl Strauch, Vice President of Brand Development and Strategic Alliances for Port Tampa Bay. “We are expanding our container facilities to about 160 acres and will take delivery late next year of two cranes capable of handling 10,000-TEU ships, all of which will provide the best connectivity to national markets.”

The Port of Savannah is the fourth largest container facility in the U.S. and moved more than three million TEUs in 2013. The Georgia Ports Authority is making improvements on several fronts including deepening the harbor to 47 feet, increasing the number of ship-to-shore cranes at its Garden City Terminal to 25, which would be the most of any terminal in the U.S., and upgrading road and rail connections.

“The Port of Savannah is known for the ease of doing business here,” said Curtis Foltz, Executive Director of the Georgia Ports Authority. “As the single largest terminal in the U.S., the Garden City Terminal provides greater flexibility for shipping lines, faster turn time for trucks, and two on-site Class 1 railroads for improved speeds across the Southeast.”

The Port of New York & New Jersey is the largest container port on the East Coast and third largest in the nation. It has invested more than $2.7 billion to deepen channels, build intermodal rail facilities, and widen roads around its terminals. It is also spending another $1.3 billion to raise the Bayonne Bridge 64 feet to a height of 215 feet to accommodate Post-Panamax vessels.

“We are in a very competitive business,” noted Richard Larrabee, Director of Port Commerce. “Ships have rudders and propellers, and they can easily go elsewhere. The higher bridge will allow shipping companies to save up to 20 percent on their slot costs and provide businesses more efficient access to our port.”

“Build It and They Will Come”

The expansion of the Panama Canal will once again change international shipping patterns, as it did when it first opened 100 years ago. But the potential impact may be limited by the new mega-container ships of 14,000 to 22,000 TEUs, which have to go elsewhere, and perhaps by the shipping shortcut of the Arctic. Not to worry. There are other cargoes as well – notably LNG, which will find new markets in Asia via the expanded Canal when nascent Gulf Coast liquefaction facilities begin to come online starting late next year.

“Build it and they will come” has been the mantra of U.S. ports. And why not? The U.S. is the world’s largest economy, and what’s worked before will work again. 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.