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Tuesday, June 25 2019 @ 03:22 AM UTC

IS THE EXPANSION OF THE ‘BIG DITCH’ JUST A ‘BIG PITCH’?

Canal Expansion ROBERT R. FRUMP for the Gulf Shipper - Plans proceed, but the economy and “Freight Pain” beg the question: Is the world still flat? Gulf ports say the containers will come. The expansion of the Panama Canal — the “Big Ditch,” as it is affectionately called — is on schedule. To curb any doubters, the canal authority affirmed financing in early December for the $5 billion-plus project. Still, even in an era where government-sponsored “infrastructure” projects seem to be popular, critics question whether the new “Big Ditch” will really re-order the world of U.S. and Gulf shipping as prophesied. Could it be just a “Big Pitch” for port expansion — with little underlying economic reality? Why would Gulf ports not expand? (more)

Some critics say it is doubtful that many of the new big ships that will ply the bigger canal will divert to the Gulf on their way to U.S. ports on the East Coast. Additional steam time and small markets will not make it worthwhile.

Critics also say that if the ships do stop at Gulf ports it will be to service mostly local populations because few Gulf ports have easy rail access to U.S. interior markets.

However, many ports along the Gulf of Mexico vigorously disagree with these assessments. They are counting on the completion of the expansion in 2014 to increase containerized traffic and to divert some to the Gulf that now comes ashore on the West Coast. Billions of dollars in port expansion plans are proposed — and none of the ports are backing off those plans.

“The Gulf ports 30 to 35 years ago lost the battle for Asia cargoes to the West Coast ports and the railroads,” said Tom Kornegay, Houston port executive director. “We’re looking for the Panama Canal expansion to change that some and spread the wealth around to Gulf Coast ports.

“Right now, Houston is a ‘destination port’ for (serving) Texas consumers,” he said. Roughly 80 percent of the containerized cargo that lands in Houston stays in the immediate region. “Over time, I suspect we will become a throughput port, with good rail connections to inland markets such as St. Louis and Kansas City.”

Tampa, New Orleans, Gulfport and Mobile also are talking about bright futures after the expanded canal opens for business about five years from now with the ability to handle larger ships carrying far more containers from Asia.

“The Far East trade via Panama figures very prominently in our future,” said James Lyons, director and chief executive of the Alabama State Port Authority in Mobile. A new container terminal that will, at full buildout, have an 800,000-TEU capacity, began receiving vessels at Mobile this fall.

“We already have one carrier, Zim with direct service and CMA CGM will start service by the end of this year,” he said. “We are building a rail intermodal facility (next to the new container terminal) which will be open in a few years and five class one railroads will have access to that facility, which will bring better access to the hinterlands.

“Our highway access is excellent and we have water access to the North, East and West for short-sea operators,” he said. “I’d say we are right on the beaten path and will continue to grow at above-average rates.”

New Orleans also is proposing a major expansion of its port, including container capacity, staked on the canal expansion.

“Our plans are ‘Shake and Bake’— ready to go into the oven,” said Gary P. LaGrange, president and chief executive of the Port of New Orleans. “We can build on existing port property. Nothing needs to be acquired or environmentally improved.” Indeed, a big jump for New Orleans, LaGrange said, would be to increase the port’s Napoleon Avenue container facility’s capacity from 400,000 TEUs to 1.2 million TEUs — a three-fold increase in capacity.

But there are a number of developments that augur less optimistically for the ports and their hoped-for increase in containerized trade.

“Whatever numbers (Gulf ports) were using prior to the economic crisis, they have to decrease them,” said Michael D. Andrews, chief economist of PIERS Maritime Research, a sister company of Gulf Shipper.

“The growth rate, the trend of the growth rate potential, will be significantly lower than it was six months to 12 months ago because growth and employment were artificially propped up and are not sustainable because we are just not going to see the same use of debt,” he said.

Additionally, Marc Levinson, economist and author of “The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger,” suggests that world trade patterns may have been forever changed by the rising costs of transportation and the diminishing reliability of logistics.

“Companies that provide American and European Customers with goods made in Asia are rethinking their models and seeking ways to shorten the distance between the factory floor and the store shelf,” Levinson wrote in “Freight Pain,” published in the November-December issue of Foreign Affairs magazine. (In other words, some factories may move from Asia to South and Central America and even back to North America in some instances.)

“Although international trade in manufactured goods will continue to expand, its rate of growth is likely to be far lower than the double-digit average of the past four decades.

“The world,” Levinson wrote, “is not so flat after all.”

Even if international trade would continue its growth at previous annual rates, Levinson said in an interview, larger ships moving through the Panama Canal are likely to scoot through to East Coast ports rather than divert to Gulf ports.

Plus, it is not clear what fee structure the canal governing body may fix for the widened canal. Declining trade through the canal now could dent the more than $1 billion in cash that current shipping throws off annually. That might force a rate increase. That might make carriers even less likely to use the canal.

A second major problem for the Gulf ports is access to good rail connections to reach the hinterlands.

CSX spokesman Gary Sease said his railroad is partnering with East Coast ports and states to eliminate rail height barriers that would limit overland traffic. He expects to see an increase in East Coast traffic once the Panama Canal expansion is finished. But there are lower expectations for the Gulf Coast.

“We want to help and participate and wish the ports great success but [we] have nothing special planned there,” he said.

Steve Branscum, group vice president of consumer products for BNSF Railway, said, “We see good opportunities for the Gulf ports, but we see that in increased trade between North and South America, not necessarily containers from Asia.”

They key to big increases in the gulf ports’ share of Asia trade is reaching the interior markets of the U.S. and with the exception of Houston, “it makes no sense to serve major interior markets through Gulf ports.

“Is there rail present in New Orleans and Mobile and Gulfport?” Branscum asked. “Yes, but what sort of rail? Is it just ‘present’ or are there high-capacity, high-volume lines? Unfortunately, with the exception of Houston, the answer is ‘no’ and that’s what many people don’t understand. Just because you have a rail line does not mean you can reach interior markets efficiently.”

Houston is the one exception, he said, in that rail to interior markets such as Denver and Kansas City is quite feasible. He would not be surprised if Houston became a “gateway port” as opposed to a destination port.

In general, he said, the Panama Canal expansion will be hurt by the apparent general economic recession and probably will not live up to the dreams of some Gulf ports.

“I’ve never subscribed to the theory that West Coast port market share of Asian imports will drop much below 70 percent,” Branscum concluded.

A host of port marketing officials with port tonnage and expansion plans on the line beg to disagree.

Houston’s Kornegay says he sees a world where West Coast ports drop to a 40 percent share of Asian trade, with the Gulf ports taking 20 to 30 percent and the East Coast of the U.S. claiming 30 to 40 percent of Asian waterborne commerce.

“Los Angeles and Long Beach just have too many insurmountable problems,” he said. “New cargoes just cannot expand overland any more, so we are seeing a steady build in traffic here and expect it to continue.”

Moreover, U.S. Gulf ports, particularly Tampa, which is the closest U.S. container port to the Panama Canal, are well-positioned to benefit from the Panama Canal’s expansion, says Wade Elliott, senior director of the Tampa Port Authority Marketing Division. He quotes a September 2008 Drewry’s white paper that states:

“Future growth in Asian trade to the U.S. is more likely to benefit the Gulf Coast ports — served by the Panama Canal — and the East Coast ports, handling Southeast Asian cargo routed via Suez.”

And Tampa, with 8 million people within 100 miles, can attract containers and serve as a destination port itself without having to worry about containers reaching the hinterlands, he said.

“Demographics for the U.S. Gulf region are such that it is projected to continue as one of the fastest growing regions of the country, with ports that have huge local markets,” he said. “This is attractive not just to importers and exporters, but also to ocean carriers as the Gulf is emerging as a new and attractive alternative to the East and West coasts, with several distinct and complementary markets.”

CMA CGM and Zim Integrated Shipping Services already have Gulf-Far East services that transit the canal. CMA CGM recently announced that it is expanding its PEX 3 all-water Gulf-Far East service to include a call at Mobile as well as Houston, while Zim’s Asia-Gulf Express calls Mobile, Tampa and Houston.

However, not all carriers see the wisdom in this. Maersk Line spokeswoman Mary Ann Kotlarich noted, for example, that while the carrier has several services in the Gulf, it is not active in the Far East-Gulf of Mexico all-water market. The market is small and the company does not believe that the canal expansion will change that. “Maersk Line is not constrained by size of the lock today in this trade, but by the limited size of the market,” she said in an e-mail.

It could be that both the critics and proponents are correct. It is true that containerized traffic through Gulf ports is small compared with West Coast ports. However, even if the canal expansion has a modest impact on world trade routes in general, it could have a significant effect on Gulf container traffic because even a relatively small increase in absolute numbers would be a large percentage increase to the Gulf.

For example, the Gulf handled about 2 million TEUs last year, of which about 70 percent went through Houston. In contrast, the ports of Long Beach and Los Angeles alone handled 2.4 million and 3.1 million TEUs during the first nine months of this year — and these numbers are decreases of 13 percent and 5 percent from 2007.

The expansion to Gulf ports may not come in a big bang but rather as a slow increase over the years, LaGrange said.

As the economy recovers, New Orleans, and the rest of the Gulf, wants to make certain the region is prepared to gain from the upswing.

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