Panama Canal Expansion: Questions mount as time draws near

While many ocean cargo gateways have concentrated on deepening their channels and harbors in anticipation of the Panama Canal expansion, drayage and warehousing may just now be getting the attention it deserves, say industry analysts. The “shovel ready” urgency is not only tied to the Panama Canal project, they add, as a new generation of huge container vessels may also be using a proposed Chinese-funded alternative through Nicaragua before the decade is done.

Speculation on the “Nicaraguan alternative” was dismissed as a dream deferred by most industry experts, who cited the massive engineering resources needed for such an undertaking. But new details on the proposal now have the world’s largest ocean cargo shipping company endorsing the idea.

According to Keith Svendsen, head of daily operations at Maersk Line in Copenhagen: “It all makes good sense.”  Svendsen notes that Maersk has already ordered super sized post-Panamax vessels that will not be able to transit the Panama Canal, even when it has been expanded and opens in January 2016, the newly projected date. Analysts at the London-based consultancy, Drewry Supply Chain Advisors concur, noting that Maersk’s Triple-E series currently on order will measure over a quarter of a mile in length. Only a Nicaragua Canal—configured at three times the length of Panama—will be able to accommodate such massive dimensions.

Hong Kong-based HKND Group was given a 50-year concession by Nicaragua’s Congress last year, and the Group’s owner, Wang Jing, says that the project will be completed before 2020. The waterway connects the Caribbean with the Pacific via Lake Nicaragua or Cocibolca, Central America’s largest freshwater lake. Its length is estimated at 190 miles.

Neil Davidson, senior analyst of ports and terminals at Drewry, says that ultimately the viability of the proposed Nicaragua Canal will depend on a host of factors, rather than solely on its ability to handle container ships beyond new-Panamax size.

“What would be the level of Nicaragua Canal tolls relative to the Panama Canal tolls for example?” Davidson asks. “Also, while container ships are a key source of activity, the potential development of the Nicaragua Canal would also be strongly influenced by flows of liquid and dry bulks and specialist sectors like car carriers.”

Furthermore, says Davidson, there would appear to be numerous environmental hurdles, which would have to be overcome, along with financing estimated to exceed $40 billion. “And it might be a moot point,” he adds, “because the very largest ships won’t serve North America in the foreseeable future.”

Port productivity
Irrespective of which canal eventually comes to dominate the Caribbean Basin, the question for many U.S. ports is whether they’ll be able handle the tremendous surge of cargo tonnage. Because the transpacific remains the most robust global trade lane, the West Coast should be well-positioned to continue to attract the most fully-loaded vessels on direct calls from Asia.

The ports of Long Beach and Los Angeles are the deepest of 29 ports on the U.S. West Coast. Seattle and Tacoma can provide the draft needed, and Oakland has been dredging to remain competitive. However, analysts are concerned about how dockside labor will deal with more volumes once the onslaught begins.

Port productivity—measured by the number of container moves handled per hour of port stay—has failed to keep pace with the rise in vessel sizes, say analysts at the Paris-based think tank Alphaliner, “The higher volumes handled on each mega ship require longer port stays, with every 1,000 TEU increase in vessel size estimated to add about 1 day to 2 days to the total round trip duration,” notes Stephen Fletcher, Alphaliner’s commercial director Fletcher says that although ports can increase the number of cranes deployed to handle larger vessels, productivity gains are limited because ships grow “beamier” with taller stacks. “Despite the introduction of faster cranes working more intensively, the increase in the volumes that each crane has to handle within a given time offset the crane productivity gains,” he adds.

West Coast defense
Without addressing productivity issues, new Port of Oakland Director of Maritime John Driscoll (see profile in Pacific Rim Report, page 88) admits that some shippers may choose to take the slower route through the expanded Panama Canal if they can find a way that works for them both financially and operationally. But import cargo favors inland point connections.

“We will continue to move a lot of exports as well,” says Driscoll, “in particular time-sensitive goods such as agricultural and reefer cargo. We are already seeing some containerships at the Oakland seaport that are too large for the expanded Panama Canal to handle.”

Additionally, Oakland reconfigured some of its terminals last year and created operationally the third-largest marine terminal on the U.S. West Coast. This enhances its ability to handle the trend toward larger containerships on the transpacific routes. Driscoll joins others is concluding that, ultimately, beneficial cargo owners will be asking themselves some critical questions when considering moving their goods through the Panama Canal. Driscoll asks:

“Would the route through the Panama Canal require a beneficial cargo owner to provide significantly more inventory due to the longer amount of time the goods are on the water? Would more time on the water drive up supply chain costs due to more vessel fuel consumption?”

Others doubt that shipping routes would change that drastically, because many shippers would still place a premium on speed; typically, East Coast-bound goods arrive faster on trains from the West Coast than by being shipped across the canal. Finally, shippers may wonder if Gulf Coast and East Coast ports will be able to finance and construct the infrastructure needed to support large import volumes.

Leveling the playing field
That question may have been answered last month when President Obama signed the 2014 Water Resources Reform and Development Act (WRRDA) into law. This culminates a series of port visits by the President, Vice President, and other top Administration officials over the past year, as well as statements about the vital importance of investing in port related infrastructure.

Port experts agree that WRRDA legislation will produce a more efficient maritime infrastructure timed to the Panama Canal expansion, and will enable expedited navigation project studies. Furthermore, it will create more flexibility for capital investment and establishes a means for donor port equity.

Analysts further note that by establishing targets for full use of the Harbor Maintenance Tax revenues for their intended purposes, Congress has achieved a major milestone by setting the bar for putting the “trust” back into the Harbor Maintenance Trust Fund.

To put this in perspective, one may wish to examine what Florida’s little Port Manatee is doing. With the ongoing development of its “international trade hub,” it aspires to compete with much larger regional ports in advancing production, distribution, and other global supply chain activities.

“As the closest U.S. deepwater seaport to the expanding Panama Canal, Port Manatee is drawing increased interest,” says Carlos Buqueras, Port Manatee’s executive director. “Companies from throughout Europe, Latin America, the Caribbean, and Asia are expected to be among those benefiting from the international trade hub, located in the Port Manatee Intermodal Center.”

Firms currently engaged in—or seeking to take part in—Cuba trade are to be a particular focus, adds Buqueras. But the nation’s shippers are, for the most part, still trying to assess the logistical advantages of the largest U.S. East Coast ports poised to take on “real world” contingencies.

East Coast is for real
The best cargo transit time from China to the U.S. East Coast is by ocean carriage (12.3 days for a ship to go from China to the U.S. West Coast) and then by rail (6 days from the West Coast the East Coast) for a total of 18.3 days. For this reason, 75 percent of Asian imports opt for this mode. Only 20 percent go through the Panama Canal because it’s longer, at 21.6 days. The rest goes through the Suez Canal directly to the U.S. East Coast, which takes 21 days.

“There’s always a concern that the rail companies may jack up the prices to make intermodal more expensive,” says John Martin, principal of port consultant Martin Associates. “But large beneficial cargo owners like Wal-Mart and Target are banking that they won’t. And if the Panama Canal Authority wants to gouge these be shippers on new toll rates, there’s always the Suez Canal alternative.”

Indeed, the major load centers on the U.S. East Coast have been readying themselves for some time to capture traffic from both the Suez and expanded Panama Canals in recent years. One thing that may make them even more attractive is the aforementioned labor problems on the Pacific Rim. East Coast ports have also seemed to address many of the trucking issues still plaguing the West—particularly with avoiding “wildcat” strikes and work slowdowns.

Ports at Charleston, Baltimore, Houston, Jacksonville, Savannah, and Miami are at various stages of expanding to accommodate the larger vessels. Scores of port projects are being studied for improvements by the U.S. Army Corps of Engineers. Still, analysts note that there are few East Coast ports with the depths required to handle post-Panamax ships.

That may soon be changing, however. Norfolk, Va., has long been able to accommodate such ships. The Port of New York and New Jersey can too, but its container terminals on Newark Bay have height restrictions due to the Bayonne Bridge. The port is planning to raise the bridge 64 feet, which will cost $1 billion and take five years. Baltimore has just completed its 50-foot dredging project.

Ports ranging from Virginia to Miami to Houston are determined to dig deeper channels and harbors to accommodate the influx of post-Panamax size vessels now on the order books. If successful, say industry experts, they may further erode the margins enjoyed by West Coast ports reliant on fast eastbound rail and intermodal service to the east.