Another three years and the ‘new’ – much wider and larger – Panama Canal will be open for business. It seems that time flies as I can clearly remember that back in 2006 citizens of Panama voted in favour of a multi-billion dollar investment to expand the Panama Canal in order to accommodate larger vessels. In fact, it seemed that everyone was in favour including banks, investors, construction companies and all those [who potentially could be] involved in this massive ‘earth moving’ project. The completion date for the widening project was set at late 2014 and it seemed a long way away, and who knew then whether the massive infrastructure project would be completed on time. But following and reporting on this immense earth-moving project on a regular basis it seems that this project will not only be completed on time it is currently ahead of schedule! This would make it more of a reality for most East Coast ports, as suddenly the deadline of 2014 doesn’t seem so far away anymore. With larger vessels transiting the Panama Canal cargo flows will have a major impact on global logistics at these ports, as not only more and more containers will arrive but also [a lack of] container capacity and hinterland connections will be causing problems.
Impact on the West and East Coast
There is no doubt that the Canal expansion will have major impacts on port infrastructure on both sides of the US (and in the Gulf), and it remains unsure how this exactly will work out. In our October 2010 issue we reported that both Los Angeles and Long Beach are somewhat worried that that many importers will decide to bypass the ports on vessels coming from Asia and go through the Canal directly to East Coast or Gulf Coast ports instead. Currently, the majority of Asian traffic calls at Port of Los Angeles or Long Beach, where it is largely moved by rail and truck to the Midwest and East coast, providing a better transportation path given the current costs and time required for an all-water route. Both ports also enjoyed a surge of container throughput over the last six months as economies around the world seem to be picking up again.
The Port of Long Beach also announced that it would be investing USD3 billion over the next 10 years to modernise its port and reduce bottlenecks for shippers, despite losing about one-third of its cargo business last year, primarily due to the recession and the drop in imports. So, would investment made by Los Angeles or Long Beach in their infrastructure avoid shippers using the West Coast of the US? The opening of the Canal in 2014 will certainly change the dynamics for ports on the West Coast as shipping lines will schedule their Post-Panamax vessels coming from Asia immediately to go through the Canal, thus bypassing the West Coast, and sail directly in to the Gulf of Mexico and call at ports on the East Coast, such as Charleston, Jacksonville, and Norfolk. Another benefit is that it will be cheaper. Calling at a West Coast port followed by rail/truck to transport goods will be more expensive than using “an all-water route” to the East Coast. Another benefit that might be of interest is that it will offer companies more control over their supply chain.
Ready – or not?
The original design goal for the Panama Canal was to enable access for ships carrying 8,000 TEU but that was later raised to 12,500 TEU vessels, as the “mega” vessel became a trend for many shipping lines. With the design of the new Panama Canal ship designers and ship yards are already figuring out how to get 14,000+ TEU vessels through the Canal and still meet the physical constraints. This growing need for larger vessels is simply based on costs. By using larger vessels you are able to save substantially, reducing costs by as much as USD75 to USD100 per container per journey. So, the question is if these larger vessels are coming on-stream are the East Coast ports ready to accommodate them? The simple question would be no. The Government-run Army Corps of Engineers has yet to evaluate all East Coast ports as a whole to determine which should be dredged to post-Panamax depths, and which would reap the most benefits for the best price. These “post-Panamax” container vessels require depths of up to 50 feet of water to navigate the entry ways to the ports when fully loaded and – at this time – the only East Coast port that has this capacity is Norfolk, Virginia. This will make the task for the Army Corps of Engineers even more difficult as it has to make a choice which port will emerge as the major East Coast or Gulf Coast port for traffic from the Far East. To avoid being sidelined by the Corps of Engineers many ports are taking [or have already started taking] action themselves to expand their ship handling capacities, but this means – in many cases – changing and expanding port infrastructure and there is a huge price tag attached to that. Therefore in order to make it more accessible to accommodate the larger vessels the ports need access to funds to do this and often rely on the Government to provide this. But some of the projects that have been planned or scheduled to be executed have been rejected by the Obama Government to the dismay of many ports.
Quick overview of what is happening and where:
Port of Charleston:
The port is looking in to deepening the approach channel from 45 to 50 feet and is need of USD 400,000 in federal money for a feasibility study by the Army Corps to determine if this would be feasible. But if the outcome of the study would be positive it will be needing millions from the government to execute the complete project.
Port of Savannah:
Four years ago the port started on an eight-year USD500 million expansion project, nearly doubling container capacity in the port. But it needs an additional USD588 million to dredge 6 feet from the 35 miles long Savannah River connecting the port with the ocean.
Port of New York/New Jersey:
The authority has started on a USD2.3 billion project to deepen its harbour to 50 feet in order to accommodate larger container vessels. Unfortunately, it needs an additional USD1.3 billion from the Government to raise the Bayonne Bridge that fronts the channel to the port.
Port of Mobile:
The port is working hard to accommodate larger vessels by creating a larger turning basin and a new container terminal. In total, the USD600 million-project also includes upgrades of cargo handling equipment.
Port of New Orleans:
Plans for expansion will cost an estimated USD250 million. The port will be able to finance USD33 million of that itself but is looking to the Federal Government or private investors for the remainder.
Port of Miami
The port has Federal permission to deepen the access channel to its port, but needs USD75 million to start the project’s first phase.
As you can see many of these ports have started or are planning to accommodate larger container vessels but there is a [growing] need for extra funding coming from the Government. Whether these funds will be granted is another issue. The budget recently approved by the Obama Government has not included the expected funding for many hopeful ports and the reason for this might be the growing concerns over the US federal budget deficit. There is also growing opposition in the House over the allocation of funds. Many States will benefit from ports that can accommodate larger vessels – not only financially but also in terms of the creation of jobs, etc. – so why don’t the States provide the funds? The Army Corps of Engineers is put in a precarious position as it needs not only to evaluate the feasibility of an expansion or dredging project but also make a recommendation for Federal funding if such a project will benefit the nation as a whole [and not only the State]. And this process could not only take months but even years and this is where the problem lies. So, the expectation is that we are going to see States stepping in to make their mark by financing port expansion projects.