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A significant expansion of the Panama Canal could make East Coast and Gulf Coast ports more competitive with those on the West Coast for the lucrative Asian trade.

Dan Sandoval July 9, 2012

The Panama Canal has been a reliable, though limited, route for many container vessels moving between the Pacific Rim and the United States. A $5.2 billion expansion of the Panama Canal, which is expected to be complete by 2014, may fundamentally change the routing pattern for many ocean vessels, enabling the East and Gulf coasts to become more competitive with West Coast ports for container traffic to Asia.

Typically, container vessels are shipped to one of the large West Coast ports, such as the California ports of Long Beach, Los Angeles or Oakland. From these ports, containers are offloaded and transported to their final destination by rail or truck. However, the Panama Canal expansion could allow more large vessels to pass through that body of water to call on East Coast ports directly.


Making Room

The Panama Canal expansion project officially began Sept. 3, 2007, and includes building two new sets of locks—one on the Pacific side and one on the Atlantic side of the canal. Each lock will have three chambers, and each chamber will have three water reutilization basins.

The existing navigation channels of Panama’s Gatun Lake will be widened and deepened, and the canal’s Culebra Cut will be deepened. To open a new 3.8-mile (6.1-kilometer) long access channel to connect the Pacific locks and the Culebra Cut, four dry excavation projects also are being built.

The plans also call for the construction of a third lane, which will allow larger vessels to move through the canal.

“In addition to the improvements to the waterway, the expansion will increase the canal’s total transit capacity and minimize waiting times, as the old locks will be working together with the new locks,” Silvia de Marucci, leader of the liquid bulk segment for the Panama Canal Authority, says.

Once the new locks are in place, the Panama Canal will be able to handle vessels as long as 366 meters (1,200 feet) with beams measuring up to 49 meters (161 feet) and a draft of 15.2 meters (50 feet). Currently, the canal allows the transit of Super Panamax vessels, which have a maximum beam of 32.3 meters (106 feet), a length of 294.1 meters (965 feet) and 12-meter (40-foot) draft.

The four-berth terminal will be capable of handling container vessels of up to 18,000 TEUs (20-foot equivalent units) in size. It will be able to accommodate 2 million TEUs per year with future expansion capability available.

A new container port in Colón, Panama, will be constructed on the Atlantic Ocean side of the Panama Canal. It is being built in conjunction with the opening of the Panama Canal’s third set of locks in late 2014. When operational, the new port is expected to become “one of the largest private maritime infrastructure projects in Panama and the first terminal to be built on freehold land,” according to the Panama Maritime Authority.

The expansion will allow more traffic to flow through the canal and will accommodate the next generation of “Super Post-Panamax” vessels, named because they exceed the size limitations of the existing canal system. Prior to the expansion, vessels passing through the canal were roughly 4,500 TEUs in size.

The Panama Canal expansion likely will benefit shippers of containerized cargo as well as shippers of bulk commodities via tanker vessels and dry bulkers.


Spurring Activity
Recognizing the potential increase in traffic when the canal expansion is complete, large ports on the East and Gulf coasts have been looking to invest in infrastructure projects that will enable them to accommodate these larger ships.

When all is said and done, a number of ports on the East Coast and Gulf Coast could see an increase in port activity, while West Coast ports, which control a significant portion of the Asia-U.S. market, could see a commensurate loss.

Not only are ports investing to meet the shifting demand afforded by the Panama Canal expansion, but shipbuilders also are undergoing significant investments to meet changing demands. According to one source, there are roughly $57 billion in new ship orders in the worldwide container fleet, half of which are for vessels larger than 10,000 TEUs, and 80 percent of which are for vessels larger than 8,000 TEUs.

This also may have a positive effect on the trade of recyclables shipped out of the U.S. to Asia, as economies of scale from using larger vessels may improve freight rates. By using the Panama Canal, shipping lines could also reduce their distances traveled considerably. One example of this is the route from the Gulf of Mexico’s ports to China, where the Panama Canal saves more than 5,200 nautical miles, equivalent to 11 days of travel.

Marucci says the expansion is expected to have a positive impact in the region and the world. So far, U.S. ports on the East Coast have been preparing to become a gateway to the cargo between Asia and the U.S. since most of the U.S. population is concentrated on the East Coast. Ports such as Houston; New York; Norfolk, Va.; Baltimore; Miami; Savannah, Ga.; and Charleston, S.C., are investing in dredging to improve navigational channel depth to be able to receive larger container vessels.

“Other ports in the world capable of receiving these larger vessels are Rotterdam, Shanghai, Valparaiso (Chile), Manzanillo (Mexico) and Balboa (in Panama) [and] Singapore, among many others. The expansion of the canal will improve the competitive position of the ‘all-water route,’” together with ports associated to this route, such as those from the U.S. East Coast ports, she adds.

However, for many of these ports to be able to service the larger vessels that the Panama Canal will be able to accommodate, significant investments in upgrades will be required. Currently, only a handful of ports in the Eastern United States can accommodate these larger vessels, though most of the deepwater ports are looking to invest in improvements to allow them to serve these vessels. Obtaining financing to pay for these projects has been a significant challenge for many port authorities, however.

The Port of Baltimore has made a number of recent investments. Port spokesman Richard Scher says Baltimore is one of only two East Coast ports with a 50-foot container berth and a 50-foot channel, “two essential elements required to handle Super Post-Panamax ships.”

The 50-foot berth is part of an agreement signed by the Maryland Port Administration and the privately owned Ports America Chesapeake in March 2010 to lease and operate the 200-acre Seagirt Marine Terminal. The project is expected to cost $105 million and is slated to be complete by the end of 2012.

In Baltimore, investments also are being made in the Class I railroad category. CSX is planning to add a new intermodal facility that will allow double-stacked containers through the port of Baltimore for increased rail-shipping efficiency.

Other ports recognize the possible opportunities associated with the completion of the Panama Canal project, though obtaining funding to update these ports could be problematic. For instance, the Savannah and Charleston, S.C., ports are waiting for federal funding to perform the dredging needed to deepen their harbors. If unable to secure funding, these ports could find their flow of shipping traffic negatively effected.

Of these two Southeast ports, the Port of Savannah is close to receiving the authorization to begin deepening its port, as Georgia Gov. Nathan Deal recently approved an additional $46.7 million to help pay for the cost of the project. The funding, approved by the Georgia General Assembly as part of the governor’s 2013 budget request, brings the total state dollars dedicated to the project to $181.1 million.


Challenging Growth

While East Coast ports see opportunities in the Panama Canal expansion project, several sources in the Western U.S. say a number of issues are creating problems, at least in the short term, for shippers.

One recycler says labor problems exist between the unions and the various port authorities on the West Coast. The friction between the two sides often results in ports failing to modernize their facilities to meet the changing needs of the industry. “Some ports are behind the curve and could lose out to other, more sophisticated ports,” the recycler says.

An even bigger problem for ports in general, one exporter says, is that the federal government continues to fail to invest at ports. Because of the lack of federal investment, many ports are finding it difficult to compete on the international market. For instance, the Port of Rotterdam is investing money with an eye on the next 20 to 30 years, according to one recycler. “They have learned how to be competitive,” he adds.

According to Logistics Management, as recently as 2005, the World Economic Forum ranked the United States tops in infrastructure economic competitiveness. However, in more recent rankings, the United States had dropped to 16th. According to Logistics Management, the decline is mostly because the U.S. spends only 1.7 percent of its gross domestic product on transportation infrastructure. “Even as the global recession has forced cutbacks in government spending, other countries continue to invest significantly more than the U.S. to expand and update their transportation networks,” the publication states.

In an effort to combat the image that the United States has failed to keep up with other ports, the American Association of Port Authorities, Alexandria, Va., cites a recent survey it conducted showing that U.S. seaports, and private sector partners, expect to invest a total of $46 billion in the next five years on wide-ranging capital improvements to their marine operations and other port properties, much of it in response to the Panama Canal expansion project.


 

The author is senior editor of Recycling Today and can be contacted at dsandoval@gie.net.

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