The Panama Canal Expansion and Ports in the Atlantic and Gulf Coast States

Transcription

1 The Panama Canal Expansion and Ports in the Atlantic and Gulf Coast States By Sujit M. CanagaRetna A Transformative Transportation Project: Panama Canal Expansion The ongoing expansion is perhaps the most transformative global transportation project now in progress. Upon comple tion in 2014, the expanded Panama Canal will facilitate an even greater flow of trade between Asia and the Americas and will substantially impact the volume of trade reaching Gulf and Atlantic coast ports in the United States. The impetus for the expansion of the canal, approved by the people of Panama in October 2006, sprang from that nation s desire to continue as a pivotal player in global trade patterns and strategically leverage its greatest asset the Panama Canal for its own economic well-being. For Panama, the only nation in the world with port ter minals in two oceans, the canal plays an extraordinary role, impacting practically every aspect of society. At the economic level, activity flowing from the canal accounts for nearly 15 percent of gross domestic product, a clear indication of the enormous economic foot print of the canal on the nation. The expansion project not only will ensure the canal s dominance as one of the most critical global transportation linchpins, but it also will strengthen the links between Asia, the United States and Latin America. Forces Driving the Panama Canal Expansion A few decades after the American-led effort to construct the Panama Canal, completed in 1914, discussions on expansion plans already were underway. The 48-mile waterway connecting the Pacific and Atlantic oceans, known as the Panama Canal, then constituted, and still remains, one of the most revolutionary navigational water channels in history. The canal shortened the distances between the East and West coasts of the United States substantially; a vessel sailing from New York to San Francisco could cut its journey from more than 13,000 miles around South America and Cape Horn, to slightly more than 5,000 miles, a significant savings in terms of both time and resources. During the years leading up to World War II, serious discussions and preliminary excavations on this expansion effort were held, but the initial momentum fizzled. In the six to seven decades after World War II, the role of the canal was magnified with the immense growth of global trade. As the first decade of the 21st century advanced, this surging world trade resulted in horrendous traffic jams at the canal, with a staggering number of colossal ships dropping anchor and waiting their turn to transit the canal. On the Atlantic side, these ships were laden with grain from the Midwest, computer and electronic products from Florida, coal from Appalachia heading to Asia and, on the Pacific side, crammed with consumer durables and electronics from Asia heading to the American East Coast. The approximately 14,000 vessels carrying 280 million tons, or 5 percent of the world s ocean cargo, were being slowed considerably due to tremendous volumes of sea-borne traffic at the canal. 1 Even though officials were running these shipping behemoths through the canal around the clock, the delays to shipping companies were overwhelming both in terms of fuel costs and wait times. Along with the immense growth in cargo volumes, the other discernible trend emerging in the shipping industry was the construction of massive new vessels. Since the opening of the canal nearly a century ago, the dimensions of cargo ships, naval vessels and passenger ships have been determined by their ability to traverse the Panama Canal. In fact, nautical terminology was adjusted to refer to a Panamax vessel a vessel that could be accommodated in the canal s 110-foot-wide lock chambers. For nearly 90 years, the vessels that moved most of the world s trade were able to fit into these lock chambers. These Panamax vessels had the capacity to carry a maximum load of about 5,000 TEUs, or twenty-foot equivalent units, the nautical term for a standard container. 520 The Book of the States 2013

2 Figure A: Pre- and Post-expansion Vessels Transiting the Panama Canal Source: Panama Canal Authority, February 2011 (as presented in Port_and_ Inland_Waterways_Preparing_for_Post_Panamax_Vessels.pdf). 21st Century Container Vessels A new generation of vessels that exceeds the current capacity of the canal s lock chambers has emerged and posed enormous infrastructure challenges, another development that propelled the expansion effort. For instance, the Mærsk Line s Gudrun Mærsk has the capacity to carry close to double the capacity of the current class of vessels that transit the pre-expansion Panama Canal. 2 These inordinately large vessels are referred to as Post-Panamax vessels and, increasingly, are being deployed to transport cargo across the globe as manufacturers, distributors, shipping companies and other interested parties seek to take advantage of the economies of scale involved with their usage. 3 Experts estimate these Post-Panamax vessels currently account for 16 percent of the world s container fleet and, more importantly, 45 percent of the capacity of the fleet, a stark reminder of their growing influence in the global shipping industry. Furthermore, the U.S. Army Corps of Engineers reports these numbers are projected to grow significantly over the next two decades; By 2030, Post-Panamax vessels are expected to constitute 27 percent of the world s container fleet and 62 percent of its capacity. 4 Figure A provides a graphical representation of the transformation of vessels that will be transiting the canal after the expansion. The new class of Post-Panamax vessels will be 40 percent longer, 64 percent wider and require a 50-foot draft to transit the canal. [W) e see a significant interest in using vessels of 10,000 TEUs and up, earlier rather than later, Jorge Quijano, administrator of the Panama Canal Authority, said about the introduction of these Post-Panamax ves- The Council of State Governments 521

3 sels after the expansion. But we expect to see early deployment of the 8,000- to 10,000-TEU vessels and gradually move up to the 12,000- to 13,000- plus-teu ships that can fit in the new locks. 5 Power of Economies of Scale Shipping experts and policymakers both within and outside Panama realized the importance of the expansion effort to accommodate the surging cargo volumes being transported across the oceans by this fleet of supersized ships. In fact, along with Panama s desire to be an integral player in future global trade, another driving force for the current expansion effort was the enormous gains to be realized by the power of economies of scale. Entities up and down the supply chain, at every level, realized the considerable financial gains and improvements in operational efficiency, productivity and profitability with the deployment of bigger vessels. Alberto Alemán Zubieta, the former administrator and CEO of the Panama Canal Authority, in a presentation in August 2012, noted two important examples of the lower costs associated with Post- Panamax vessels transiting the Panama Canal. 6 First, a transshipment of coal between the Port of Baltimore to Xiangang, China, in a Panamax vessel (pre-canal expansion) costs about $35 per ton; the same amount of coal, between the same two cities, in a Post-Panamax vessel, would cost approximately $25, $10 less per ton. Second, grain transported to Asia from the American grain belt would cost about $55 per ton in a Panamax vessel, whereas the shipping cost would equal approximately $50 per ton on a Post-Panamax vessel. Alemán said that the land bridge option transported across the United States to a West Coast port from the East Coast remains the most expensive option; in the example of a ton of grain, this transportation mode would cost $95 per ton. Continuing in that same vein, Quijano, the Panama Canal administrator said, the new economies of scale and faster passage between the Americas and Asia will not only change maritime routes and cargo logistics, but also will create new markets to exploit the bigger ships and deeper ports. 7 Quijano projected that, as a result of the expansion of the Panama Canal, we ll see Texas ports shipping more shale gas to Japan, which is moving away from nuclear power to natural gas. We ll see East Coast ports and new sources in Colombia shipping more coal to China. There will be iron ore from Brazil headed to Asia through the Canal, and on and on. Essence of the Panama Canal Expansion Project Shortly after the 2006 referendum in Panama, work began on the expansion and modernization effort $5.25 billion at the time of inception. 8 In essence, the project involves the construction of two new sets of single-lane locks one on the Pacific side and another on the Atlantic side of the canal. The new, concrete lock chambers will be 1,400 feet long, 180 feet wide and 60 feet deep, while each lock complex will stretch for more than a mile and a half, creating the largest lift complex in the world. Each lock will have three chambers and each chamber will have three water reutilization basins. Despite the abundant rainfall in Panama, engineers working on the canal have been cognizant of the need to conserve water because the canal s watershed the 166-square-mile, man-made Gatun Lake supplies drinking water to nearly the entire population living in the vicinity of the waterway. Given that nearly 2 billion gallons of water are needed to fill the locks for transiting ships every day, the expansion effort could have required an additional 2 billion gallons of water, an enormous strain on the region s water resources. In an innovative move based on the locks system on the Elbe River in Germany, however, engineers working on the Panama Canal expansion devised a unique water recycling system with the construction of three new water reutilization basins. These basins cumulatively will secure nearly two-thirds of the water from the locks as they empty, which will be recycled and used for the next vessel that travels through the canal. With the expansion, the new lock chambers will not only retain 65 percent more water than the current locks, but they also will use 7 percent less water per transit. In addition, the expansion project includes two new navigational channels to link the new locks to existing navigational channels, a measure that will result in excavating nearly five miles of new channel. The current navigational route through Gatun Lake also will be deepened by five feet and widened from the 500-foot minimum to 920 feet on straightaways and 1,200 feet on the turns. In addition, Gatun Lake will be elevated and raised one-and-a-half feet, generating an additional 550 million gallons of water each day for the locks. Upon completion, workers on the expansion project will have dredged 130 million cubic meters 4,591 million cubic feet of rock and soil, or enough rock and soil to fill the Empire State Building nearly 522 The Book of the States 2013

4 130 times. The expansion effort will not only be sufficient to accommodate the largest Post-Panamax vessel, but it also doubles the canal s capacity. Surge in International Trade Intertwined with Panama s strong support for the expansion of the Canal is the meteoric rise in international trade in the past two decades. Experts quickly are realizing that U.S. exports are a bright spark in the otherwise relatively anemic economic recovery. For 15 consecutive quarters between the second quarter of 2009 and the fourth quarter of 2012 U.S. exports have expanded and continued progress is expected in this area, generating jobs and economic opportunities for people across the country. The American Association of Port Authorities estimates that every $1 billion in exports generates 15,000 jobs. 9 A number of factors have propelled this solid export performance, including the low value of the dollar, which raises the competitiveness of U.S. products in international markets, and the strategic efforts of U.S. multinational corporations to market items such as aircraft, motor vehicles and petroleum products. Table A documents the progress of U.S. goods exports in the past few years; the surge in U.S. goods exports since 2010 has been impressive. For the latest full year available, 2012, U.S. goods exports reached an all-time high of $1.54 trillion, an improvement of 4 percent over the $1.48 trillion secured in Texas was the nation s top goods exporter last year and shipped a staggering $265 billion to all corners of the globe. The Lone Star State s 2012 export tally clearly cemented its reputation as the nation s top exporter in each of the past five years. New Mexico had the highest rate of goods export growth in the nation in 2012, 42 percent, while Arkansas had the second highest expansion rate at 36 percent. New Mexico s nearly $3 billion in goods exports in 2012 was striking compared to the $2.1 billion achieved in the previous year. A review of state goods export data over the 2008 to 2012 five-year period, in terms of growth rates, established West Virginia as the national leader. Not only did the Mountain State secure a stunning 101 percent increase in goods exports between 2008 and 2012 $5.6 billion to $11.4 billion but West Virginia also increased its exports by 26 percent between 2011 and 2012, the fourth highest growth rate in the country. West Virginia was the only state that secured a triple-digit export increase between 2008 and 2012, a further reflection of the state s strong commitment to export promotion. Along with U.S. goods exports, the other important category in total U.S. exports involves services. In a reflection of the growing influence of the service sector in the U.S. economy, a review of services exports in 2012 reflects notable trends as well. 10 In 2012, services exports totaled $632 billion, an expansion of more than $26 billion from With regard to U.S. services exports, increases were reached in travel and other private services, which include items such as business, professional and technical services, insurance services and financial services. When U.S. goods and services exports in 2012 are combined, the nation set another export record, soaring to $2.2 trillion and eclipsing the 2011 combined total by nearly $93 billion. Global Exports: Projected to Increase Given that future export growth will be critical to take full advantage of the Panama Canal expansion, the forecast for the coming years appears to be promising. Myriad economic forecasts related to exports and container shipments indicate sustained growth throughout this decade. For instance, an October 2012 report released by the Congressional Research Service documents that IHS Global Insight Inc., a leading U.S. economic forecasting firm, projected that U.S. exports will reach $1.5 trillion in , $1.6 trillion in 2013 and $1.7 trillion in A report by Global Industry Analysts Inc. in April 2012 forecasted that the global market for maritime containerization will reach 731 million TEUs by 2017, 13 an impressive increase from the 434 million TEUs that transited the top 100 ports in the world in The Global Industry Analysts report noted that growth in the container market will be primarily driven by increasing sea trade, developments in shipping networks and transshipment hubs, encouraging investments in port terminal facilities, growing capacity and increased frequency of global maritime freight transport. Given the dominant role played by exports in fostering economic growth in the past few years, combined with President Obama s pledge in 2010 to focus on export-led growth and double U.S. exports in five years, there is strong consensus that this segment of the economy will be a thriving one. In response to this expected surge in trade, shipping professionals assert that the largest injection of new ship capacity in the history of container shipping will occur in 2013, with at least 100 vessels with a capacity exceeding 7,500 TEUs being The Council of State Governments 523

5 Table A: Total All Merchandise Exports to World State or other % jurisdiction Rank % chg % chg % chg % chg. chg. United States (a)... 1,287,441,996,730 1,056,042,963, ,278,263,225, ,480,431,903, ,546,455,243, Alabama ,879,048,527 12,354,803, ,501,508, ,854,217, ,525,676, Alaska ,541,796,749 3,270,429, ,154,626, ,325,000, ,596,240, Arizona ,784,243,422 14,023,462, ,635,757, ,793,213, ,356,620, Arkansas ,775,976,750 5,266,978, ,218,646, ,607,245, ,620,505, California ,805,748, ,079,965, ,192,250, ,121,792, ,699,611, Colorado ,712,606,567 5,867,265, ,726,706, ,332,497, ,163,563, Connecticut ,384,102,725 13,978,898, ,056,449, ,211,927, ,865,581, Delaware ,898,437,003 4,311,773, ,965,544, ,509,511, ,157,151, Florida ,238,239,529 46,888,006, ,364,760, ,904,313, ,398,008, Georgia ,513,961,882 23,743,041, ,949,552, ,776,304, ,892,205, Hawaii ,607, ,059, ,045, ,069, ,228, Idaho ,005,251,812 3,877,389, ,156,919, ,904,889, ,113,365, Illinois ,677,477,963 41,626,110, ,058,293, ,823,414, ,026,296, Indiana ,502,291,510 22,907,367, ,744,977, ,282,315, ,384,981, Iowa ,124,631,240 9,042,125, ,880,026, ,306,810, ,603,539, Kansas ,513,976,006 8,916,920, ,905,219, ,598,460, ,659,454, Kentucky ,120,585,559 17,649,768, ,342,737, ,083,680, ,092,307, Louisiana ,908,136,496 32,616,451, ,355,870, ,976,078, ,155,728, Maine ,016,395,471 2,231,142, ,163,991, ,420,593, ,058,020, Maryland ,383,050,502 9,225,376, ,163,267, ,852,469, ,781,266, Massachusetts ,369,195,305 23,593,277, ,303,601, ,761,320, ,549,264, Michigan ,135,506,345 32,655,333, ,768,187, ,003,027, ,902,109, Minnesota ,186,171,449 15,531,557, ,903,725, ,318,743, ,564,868, Mississippi ,323,468,227 6,316,488, ,228,851, ,930,321, ,778,895, Missouri ,852,324,415 9,522,229, ,925,559, ,153,831, ,909,535, Montana ,394,600,906 1,053,312, ,388,777, ,587,422, ,572,538, Nebraska ,412,021,410 4,872,924, ,819,949, ,582,290, ,449,211, Nevada ,121,087,925 5,672,185, ,911,812, ,977,768, ,189,919, New Hampshire ,752,476,603 3,060,715, ,367,331, ,297,163, ,485,311, New Jersey ,643,101,080 27,244,246, ,153,593, ,114,577, ,034,750, New Mexico ,782,906,663 1,269,535, ,540,970, ,091,791, ,979,958, New York ,385,735,231 58,743,030, ,695,634, ,887,562, ,188,946, North Carolina ,090,543,442 21,792,953, ,905,063, ,008,756, ,746,966, North Dakota ,772,203,944 2,193,011, ,536,428, ,393,096, ,287,618, Ohio ,627,982,845 34,104,484, ,493,512, ,415,700, ,535,070, Oklahoma ,076,531,187 4,414,915, ,353,190, ,221,504, ,575,471, Oregon ,352,130,713 14,907,405, ,671,067, ,310,101, ,300,400, Pennsylvania ,648,502,042 28,381,102, ,927,694, ,074,879, ,868,921, Rhode Island ,974,431,973 1,495,522, ,949,146, ,282,413, ,376,107, South Carolina ,852,520,521 16,488,111, ,328,687, ,697,462, ,247,302, South Dakota ,653,712,654 1,010,960, ,259,394, ,460,280, ,550,156, Tennessee ,237,724,782 20,484,299, ,942,724, ,993,138, ,125,450, Texas ,221,780, ,994,740, ,960,767, ,005,673, ,352,022, Utah ,305,992,531 10,337,135, ,809,376, ,033,516, ,938,848, Vermont ,697,411,932 3,219,270, ,277,417, ,256,644, ,305,876, Virginia ,941,608,711 15,052,091, ,163,324, ,088,836, ,238,803, Washington ,498,049,919 51,850,856, ,353,413, ,766,844, ,524,528, West Virginia ,643,487,491 4,825,570, ,449,180, ,034,015, ,361,868, Wisconsin ,569,621,721 16,724,996, ,789,522, ,055,118, ,097,184, Wyoming ,081,014, ,141, ,287, ,218,540, ,420,496, Dist. of Columbia ,195,906,725 1,090,543, ,500,660, ,038,626, ,014,811, Puerto Rico ,961,283,553 20,937,064, ,784,088, ,200,275, ,662,905, Virgin Islands ,747,339,175 1,217,003, ,898,505, ,315,770, ,435, Unallocated ,188,054,504 33,619,608, ,697,621, ,286,080, ,572,332, Source: Office of Trade and Industry Information, Manufacturing and Services, International Trade Administration, U.S. Department of Commerce Accessed Feb. 8, 2013, (a) U.S. totals include: District of Columbia, Puerto Rico, Unallocated and Virgin Islands. 524 The Book of the States 2013

6 delivered this year alone. 15 In fact, by 2015, experts estimate another 700 ships with the capacity to carry more than 7,500 TEUs and above will be in operation. Four major lines each will operate more than 50 ships of this size, with the shipping lines Mærsk and MSC operating more than 100. In addition, MSC is projected to maintain a fleet of more than 50 ships of more than 12,000 TEUs, all clear indications that the shipping industry is preparing for a sizable flow in trade. Activity at the Atlantic and Gulf Coast Ports Coinciding with the activity in Panama related to the expansion, ports across the Atlantic and Gulf coasts of the United States have seen considerable action. This activity stems from the fact that these ports are seeking to secure the additional business, potentially billions of dollars, that is expected to flow to the Atlantic and Gulf coast ports as a result of the expansion of the canal and continued growth in world trade. Even though most experts are convinced the massive explosion in trade will provide ample opportunities for a number of these ports to benefit tremendously, they equally are convinced that these ports need to make essential infrastructure enhancements to accommodate the larger vessels that will be wending their way to their docks. A number of factors account for the activity in these Atlantic and Gulf coast ports. For instance, demographers forecast the U.S. population will increase by 32 percent, or nearly 100 million people, over the next 30 years, while per capita income is expected to surge by 170 percent during the same period. 16 The regions expected to experience the highest population growth are the South and West, a development that will generate demand for enhanced trade in these regions. In fact, experts calculate this drive for increased trade will result in imports expanding more than fourfold and exports expanding more than sevenfold by This growth in trade will heighten the need for the nation s maritime assets and related multimodal transportation systems to be performing at peak capacity, a challenge complicated even further with the onerous infrastructure requirements to accommodate the larger vessels expected through the expanded Panama Canal. Port professionals and trade experts are convinced that exports will continue to play an overwhelmingly influential role in the economic affairs of every state in the country. As Carlos Buqueras, the executive director of the Port of Manatee in Florida noted with regard to trade and the role of ports in facilitating this trade: (T)rade stops, the country stops. It s crucial we maintain our ports. 17 U.S.-Panama Free Trade Agreement A corollary to this expected growth in global trade, including a renewed focus in the United States to promote our nation s exports, is the free trade agreement between the United States and Panama that was signed into U.S. law on Oct. 21, Panama approved the agreement with the United States in July The presence of an agreement with Panama is an important boost to bilateral trade between Panama and the United States, since it often leads to even further liberalization of trade in goods and services. In the context of the ongoing expansion of the canal, the path for an even greater movement of cargo is considered a very likely scenario with the free trade agreement. According to the International Trade Administration of the U.S. Department of Commerce, U.S. goods exports to Panama totaled nearly $10 billion in 2012, up more than 20 percent from the $8.2 billion exported to Panama in Between 2005 and 2012, U.S. goods exports to Panama more than quadrupled, growing from $2.2 billion in 2005 to nearly $10 billion in 2012, making Panama the 30th largest export market for the U.S. in Significant Economic Impact of Ports Another factor contributing to the increased activity at these ports is the competition among them to capture an ever-growing share of the traffic that will be coming through the Panama Canal. For a number of years, interested parties have analyzed the tremendous economic impact flowing from the nation s ports. In January 2013, the Alabama State Port Authority released a study confirming the Port of Mobile s role as a critical economic catalyst for the state and its role in creating jobs and generating tax revenues. The 2011 fiscal year economic impact study estimated $22.3 billion in total economic value for the state of Alabama from the cargo and vessel activity at the Port of Mobile. 20 Also in January 2013, an economic impact study of the Port of Brownsville, Texas, documented the port produced $2 billion in economic activity in the state, and that the vessel and cargo activity at the port s marine cargo facilities and ship repair/ oil rig maintenance operations generated 21,590 jobs. 21 Of that number, 11,230 jobs directly impact the local and regional economy, while business revenue related to the handling of marine cargo generated an estimated $925 million in local economic impacts, according to the report. The Council of State Governments 525

7 Figure B: Possible Direct Route from Asia to East Coast through the Panama Canal Source: A.P. Moeller Mærsk Group, 2011 Service Schedule (as presented in June_20_U.S._Port_and_Inland_Waterways_Preparing_for_Post_Panamax_Vessels.pdf.) Similarly, an April 2012 study released by the Selig Center for Economic Growth at the University of Georgia s Terry College of Business documented that Georgia s deepwater ports supported more than 350,000 full- and part-time jobs across the state, 8.3 percent of total state employment. In other words, one of 12 jobs is in some way dependent on the ports. 22 A March 2012 study released jointly by the Ports Association of Louisiana and the Louisiana Department of Transportation and Development documented that Louisiana s port system is an enabler and serves as a launch pad for the state s five major industries oil and gas, transportation, warehousing, agriculture and manufacturing all critical parts of the state s economic base. 23 This study documented that nearly 73,000 jobs are created and supported by the 30-plus deepwater and shallowwater ports spread across the state, while the estimated economic impact of firms providing services to ports and vessels and firms located at the different ports and port property amounted to $19.8 billion. In addition, personal earnings totaled $3.96 billion, while state and local government tax collections from port-related activities totaled $517 million per year. A report by the South Carolina State Ports Authority in October 2011 noted that international trade through South Carolina ports facilitated more than 280,000 jobs across the state in the maritime, transportation, distribution and manufacturing industries, while providing an overall economic impact of $45 billion each year. 24 Finally, according to a February 2011 study from the North Carolina State University Institute for Transportation Research and Education, North Carolina s ports contributed approximately $7.5 billion to the state s economy in relation to goods moving through the state s ports, supporting more than 65,000 jobs, both directly and indirectly. 25 Similar trends are evident at ports across the region. For the region as a whole, indisputably, a thriving port results in tremendous economic activity that generates a range of positive outcomes. There is sustained interest in the region s ports to capture as much of the enhanced trade flowing through the canal as a means to generate additional economic activity, not only around the port, but across the state. Battle of the Ports: East Coast v. West Coast Also important in accounting for the infrastructure enhancements at ports along the Gulf and East coasts is the strong speculation that the expansion of the Panama Canal will lead to these ports advancing at 526 The Book of the States 2013

8 the expense of the West Coast ports. 26 A principal feature of trade statistics relating to U.S. ports in the past two decades has been the increasing dominance of a number of Atlantic Coast and Gulf Coast ports. In anticipation of the expanded Panama Canal, this has become even more pronounced, with a number of Atlantic Coast and Gulf Coast ports initiating an assortment of specific measures to wrest away a greater portion of the cargo primarily from Asia delivered to West Coast ports. The ports of Los Angeles and Long Beach have played an influential role in national cargo trends for decades and, until quite recently, the strategy was to clear the goods off arriving vessels at these ports and then move the goods by truck and rail to their final destinations across the country. Some 40 percent of all container cargo traffic into the United States still arrives at these two ports. In recent years, this strategy has undergone a transformation, precipitated by several factors, including labor unrest at the West Coast ports; the move by shipping companies and distributors to explore lower-cost alternatives; lack of land for expansion at West Coast ports; and significantly lower rail capacity at these ports. In fact, the strike threats and eventual strikes at the ports of Long Beach and Los Angeles in the fall of 2012 put all concerned parties on notice about the potential setbacks to smooth shipping operations as a result of the labor unrest. Consequently, cargo volume arriving at West Coast ports has dropped. Based on these developments, the emerging consensus is that the expansion of the Panama Canal will further the movement away from West Coast ports, especially given the increasingly larger vessels that will be able to operate through the Canal and call at select Atlantic and Gulf Coast ports. Consequently, these ports have seized the opportunity to secure a greater proportion of the cargo volumes entering and departing the United States. 27 Notwithstanding this trend, some analysts are less sanguine about this movement away from West Coast ports to ports in the East and Gulf coasts after the Panama Canal expansion project is completed. 28 According to these analysts, the Panama Canal expansion actually raises more questions than answers such as whether shippers could gain a viable all-water alternative for transporting products from Asia to U.S. Atlantic and Gulf coast ports and whether there is a boom on the horizon related to this shift. However, these experts maintain that Panama s development potential as an American distribution hub could be the gamechanger that completely reshapes future shipping trends. Obama Administration s We Can t Wait Initiative A number of ports on the Atlantic and Gulf coasts initiated efforts to compete aggressively against each other to secure a greater share of the increase in global trade related to the expansion of the Panama Canal. Some of these ports received a considerable boost in July 2012, when, as part of its We Can t Wait initiative, the Obama administration announced that seven nationally and regionally significant infrastructure projects will be expedited to help modernize and expand five major ports in the United States, including the Port of Jacksonville, Port of Miami, Port of Savannah, Port of New York and New Jersey, and Port of Charleston. 29 Four of these five ports are in the Southern region. One of the critical preliminary steps in modernizing and expanding these Southern ports involves finalizing the federal feasibility studies that examine the costs and benefits of deepening their channel depths. While these studies take an average of 10 years, the expedited process announced by the Obama administration commits the federal government to finalize the study years ahead of projections. In the instances of the ports of Jacksonville, Miami, New York and New Jersey, and Charleston, the expedited process will enable these ports to reach a channel depth of 50 feet well ahead of schedule (in the case of Charleston, for instance, the study is expected to be complete within 3 years, considerably earlier than the over 10 year average), a critical factor in attracting traffic transiting the expanded Panama Canal. In February 2013, officials representing six Florida ports expressed frustration with the pace of the improvements at their ports and pleaded for help from Congress and the Obama administration to push the U.S. Army Corps of Engineers to move faster on the port improvements implemented in anticipation of the completion of the Panama Canal expansion. 30 Atlantic and Gulf Coast Preparations for the Panama Canal Expansion Ports on the Atlantic and Gulf coasts are enhancing their infrastructure capacities in preparation for the Panama Canal expansion: Port of Savannah: The Georgia Ports Authority, the entity overseeing the administration of the Port of Savannah and the other ports in the state, embarked on a comprehensive effort to both expand and modernize every aspect of the port s operations. A hallmark of this expansion effort is the Savannah Harbor Expansion Project, a col- The Council of State Governments 527

9 laboration between federal and state agencies to deepen the Savannah River from 42 feet to 48 feet. This is a $652 million deepening project and Gov. Nathan Deal s proposed 2014 fiscal year budget included an additional $50 million for a total state contribution of $231 million toward the project. 31 The governor noted that for every dollar the federal government spends on the project, the nation will see $5.50 in benefits via lowered costs of goods brought to the market. The Port of Savannah s record in recent years has been most impressive, accomplishing strong growth in breakbulk and auto cargoes, alongside record volumes in total tonnage and container traffic. Port of Charleston: The South Carolina State Ports Authority s major deepwater port is the Port of Charleston, another critical port on the East Coast. While North American container port volumes were up 2 percent overall in 2012, the Port of Charleston s volumes grew by 10 percent. In preparation for the Panama Canal expansion and expected routine flow of Post-Panamax vessels, the Port of Charleston has focused on its own harbor deepening project. In 2012, this effort was boosted significantly when the South Carolina General Assembly moved to fully fund the project s construction phase by setting aside the entire $300 million estimated cost. 32 This allocation not only will cover the state s 60 percent share, or $180 million of the cost, but it also will fund the federal share of deepening the Charleston Harbor to 50 feet or greater from the current 45 feet if needed. While the state expects to be reimbursed by the federal government for its $120 million share of the deepening project, the state was propelled into action by the need to complete the deepening project by Port of New Orleans: Since it was founded in 1718, New Orleans has been a focal point for global trade. The Port of New Orleans is one of the most significant in the nation, ranking in the top 10 for cargoes ranging from imported steel and natural rubber, to plywood and coffee. In preparation for the Panama Canal expansion and expected swell of container cargo into Gulf ports, the Port of New Orleans spent $36 million on two new gantry cranes and a 4.5-acre marshaling yard that expanded its container handling area to 115 acres. 33 Port officials estimate an additional $478 million in upgrades including improved breakbulk and container terminals, new multipurpose gantry cranes, expanded marshalling yards and a new road to handle truck traffic will be necessary to help boost that capability to 1.5 million TEUs per year, up from the current 640,000 TEUs currently handled annually, when the Panama Canal expansion is completed. Port of Virginia: The Virginia Ports Authority, which owns and operates the Port of Virginia, touts its ability to handle the required channel depth of 50 feet to 55 feet the deepest shipping channels on the U.S. East Coast and height clearance approximately 50 feet of the Post-Panamax vessel class that will be more routine after the Panama Canal expansion. 34 The Virginia Ports Authority has been working assiduously for the past six years to prepare for the canal expansion, including leasing the sizable APMT Intermodal Terminal at Portsmouth, expanding capacity at the Norfolk International Terminal and enhancing infrastructure capabilities at the Craney Island, a $2.2 billion multi-phase terminal project. At the APMT Intermodal Terminal, the port operates eight Post-Panamax cranes, bringing it to a total of 22 container cranes that are Panamax-class and larger. The port s multimodal capabilities, including the double-stack rail lines to Chicago, also remain a major attraction. The Virginia General Assembly has had ongoing discussions during the 2013 legislative session and a bipartisan effort to restructure the management of the ports while reining in the governor s ability to lease or sell off operating rights at the state-run terminals. 35 Port of Brownsville: The only deepwater port directly on the U.S.-Mexico border, the Port of Brownsville is a critical linchpin in the movement of goods between the United States and Mexico and other global locations. In anticipation of the extra shipping activity and added cargo volumes after the Panama Canal expansion, the port has invested $90 million in infrastructure projects, including multimodal options. 36 Eddie Campirano, port director and CEO, notes that it is imperative the Port of Brownsville moves toward deepening its channel depth from the current 42-foot draft to 50 feet. (E)nlarging the channel isn t a luxury; rather, it is a necessity to take full advantage of growing cargo activity in the Gulf in coming years, not to mention the Port s prime geographical location on the doorstep of Latin America, he has said. Florida Ports: A number of Florida ports have seen a flurry of activity to initiate infrastructure enhancements for the Panama Canal expansion, a trend underscored by the release of the state s $9.1 billion transportation budget proposal for the 2014 fiscal year in February In fact, a February 2013 news article referenced an unprecedented flood of money being steered to ports to get 528 The Book of the States 2013

10 them primed for the Panama Canal expansion. The proposed budget for the upcoming fiscal year includes $30.6 million for the Port of Miami, $26.7 million for the Port of Tampa, $19.5 million for the Port of Manatee and close to $100 million across the rest of the state. We re leveraging what s going to happen with the post-panama Canal expansion. Florida s truly going to be the gateway to the Americas, Florida Transportation Secretary Ananth Prasad recently said in testimony before a Florida House Transportation Committee. Port of Miami: The Port of Miami has focused intensely on preparing for the onset of Post-Panamax vessels in multiple ways. One approach is its harbor deepening or dredging project. In August 2012, the Port of Miami and the U.S. Army Corps of Engineers signed a construction agreement permitting the Port s Deep Dredge project to go out for bid. The Deep Dredge seeks to deepen the port s existing 42-foot channels to between 50 and 52 feet in preparation for the Panama Canal expansion. This deepening project is expected to cost about $1 billion and will be completed around the same time as the Panama Canal expansion project. In October 2012, Florida Gov. Rick Scott pledged $112 million in state funds to ensure that the port s Deep Dredge project remains on schedule and is ready for the expanded Panama Canal. 38 Second, the port is leading the way in constructing the PortMiami Tunnel, a public-private partnership comprising the Miami Access Tunnel, Florida Department of Transportation, Miami-Dade County and the city of Miami to build two tunnel tubes under Biscayne Bay linking the Port of Miami with the mainland. Experts maintain the tunnel is critical to the port s future growth since it will enable port traffic to move seamlessly to and from the interstate system, while significantly reducing traffic in downtown Miami. The PortMiami Tunnel project is expected to cost $1 billion and, while construction on it began in May 2010, completion is expected by May The Port of Miami also is working on redeveloping 80 acres of cargo terminal area, a measure that will generate greater efficiencies in cargo terminal operations. All these efforts are directed at ensuring that, as one of the closest ports to the Panama Canal, Miami is well-positioned to capture new trade opportunities and help transform Florida into a global logistics hub. Port Everglades: Port Everglades in Broward County also is working toward infrastructure improvements in preparation for the canal s expansion. 39 In addition to the construction of five new berths to accommodate the increased cargo traffic, the port intends to widen and deepen channel depth to 50 feet as well as enhancing freight rail capabilities. A Port Everglades official noted that even though the port already handles Post-Panamax ships, they must be lightly loaded, which is inefficient and drives carriers away to other ports. Hence, Port Everglades officials are focused on implementing a range of infrastructure enhancements to remain competitive with seaports in the Southeastern area of the United States. Port of Wilmington: The North Carolina State Ports Authority operates a number of facilities, including the Port of Wilmington, the Port of Morehead City, and inland terminals in Charlotte and in the Piedmont Triad at Greensboro. In January 2012, the Ports Authority announced it had renewed its strategic alliance with the Panama Canal Authority with the signing of a memorandum of understanding. This memorandum reaffirmed both entities dedication to generating new business and promoting an all-water-route once the expansion of the Panama Canal is completed. As Carl J. Stewart Jr., the chairman of the North Carolina State Ports Authority Board of Directors in January 2012 noted, two-thirds of the cargo handled at North Carolina s ports transits through the Panama Canal and we look forward to the next five years of our renewed partnership, especially the eagerly anticipated completion of the Panama Canal expansion. 40 Port of Houston: In March 2012, the Port of Houston announced the introduction of a new allwater service connecting Asia and Houston via the Panama Canal. Vessels from COSCO Container Lines Americas will travel between Shanghai and Houston transiting the Canal in what has been termed the Gulf of Mexico Express service. 41 The Gulf of Mexico Express becomes the first direct container liner service from China to call at the Port of Houston in nearly 10 years and is a strong indication of the thriving shipping activity forecasted between Asia and the Gulf Coast, via the canal, in coming years. To prepare for the inflow of larger vessels and increased cargo resulting after the Panama Canal expansion, along with the expected future population growth in the region, the Port of Houston has a strategic plan to use its natural advantages and enhance its capacities. These plans include building first-class container facilities at both the Bayport Terminal and the The Council of State Governments 529

11 Barbours Cut Terminal; rejuvenating the port s general cargo facilities and business practices while efficiently accommodating a diverse cargo portfolio; maintaining and improving the Port of Houston s ship channel currently at 45 feet deep and 530 feet wide and its tributaries to meet current and future navigation needs; leveraging the local and regional transportation systems and expanding the footprint of the port s logistics links, including roads, rail and barges; heightening the value and function of the port s varied real estate assets; and optimizing the port s financial position in response to marketplace and business demands. In terms of financial outlays for these projects, in 2013, the port will seek approval for $220 million in capital improvement projects, of which approximately $142 million will be allocated to the port s container terminals for continuing development of Bayport and modernization at Barbours Cut. 42 In addition, the port will reserve about $9 million for maintenance dredging and related improvements, with the remaining 2013 capital budget deployed for projects at the general cargo and bulk terminals in the Turning Basin area and port security. Conclusion Experts are optimistic that the U.S. exports market will continue its current growth and increase substantially in the coming years once the economic situation in Europe and Asia stabilizes and improves. U.S. global trade is projected to flourish in the coming years with the completion of the Panama Canal expansion, a critical link in the transportation of goods to and from the United States, playing a dominant role in promoting these trade links. The potential for additional cargo being ferried to Atlantic and Gulf coast ports and away from West Coast ports has resulted in a flurry of activity in a number of Southern ports as they prepare for both the expansion in cargo volume and vessel size. Port officials and policymakers do not view the cargo expected to arrive at Atlantic and Gulf coast ports as a zero-sum game and are confident that the increase in cargo volumes with the Panama Canal expansion will be substantial. In turn, this increase will provide incredible opportunities for a number of ports. Policymakers at every level of government realize the tremendous economic prospects, not only in the manufacturing of export items, but also in the activities of the ports and related multimodal transportation solutions. As a result, important infrastructure enhancements are underway in a number of Southern ports given the increased anticipation that an even greater portion of future U.S. exports and imports will transit through a Southern port. In fact, it is impressive to see policymakers at every level of government federal, state and local along with partners in the private sector, working collaboratively to initiate infrastructure improvements at the region s ports that not only prepare for the onset of Post-Panamax vessels, but also will enhance the economic potential of their individual cities, states and beyond. Notes 1 The Canal Gets Bigger, and U.S. Ports are Ready, Business Facilities, April 1, Even larger vessels sail the oceans now. For instance, Mærsk Line s PS-class vessels have the capacity to carry nearly three times the container load of Panamax vessels; the Emma Mærsk is capable of carrying 15,500 TEUs and has an overall length of 1,302 feet, a width of 184 feet and a draft of 51 feet. The Emma Mærsk and her seven sister ships Ebba Mærsk, Edith Mærsk, Eleonora Mærsk, Elly Mærsk, Estelle Mærsk, Eugen Mærsk and Evelyn Mærsk are identical and the wave of the future in the shipping industry. In November 2012, the Marco Polo, a container ship owned by the Marseille, France-headquartered CMA CGM group, became the largest container ship in the world measured by capacity. The Marco Polo can hold 16,020 TEUs. 3 For the purposes of this article, the term Post-Panamax refers to vessels that can be accommodated in the Panama Canal once the expansion is completed. 4 U.S. Port and Inland Waterways Modernization: Preparing for Post-Panamax Vessels, U.S. Army Corps of Engineers, Institute for Water Resources (IWR), June 20, Quijano Prepares for New Job as Panama Canal Authority Administrator, The Journal of Commerce, May 28, Presentation by Mr. Alemán Zubieta, Alberto, former administrator and CEO of the Panama Canal Authority at the Southern Governors Association Annual Meeting, August 10, Expanded Panama Canal Sparks Race To Be Ready For Bigger Cargo Ships, The Washington Post, January 12, Information related to the technical specifications of the Panama Canal expansion is extracted from: Reagan, Brad. The Panama Canal s Ultimate Upgrade, Popular Mechanics, October Nagle, Kurt, President and CEO, American Association of Port Authorities (AAPA), Freight Policy Across All Modes, November 15, 2012, cil.org/presentations/2012fallsymposium/nagle.pdf. 10 U.S. services exports, a rapidly growing sector of both exports and the U.S. economy; include such categories as royalties and license fees, travel services and financial services. 11 With the benefit of hindsight, it is now possible to say that this IHS Global Insight Inc. forecast was accurate. U.S. exports in 2012 were, in fact, $1.5 trillion. 530 The Book of the States 2013