Panama Canal expansion delays could benefit Gulf ports When the new, expanded Panama Canal finally opens sometime in early 2016, an armada of ships twice the size of those capable of transiting the waterway today will line up to call U.S. East and Gulf Coast ports from Asia. For breakbulk shippers who use the canal to ship their cargo to and from Asia, the expanded canal locks will open up huge new opportunities, especially on the export side. In a recent report covering the impact of the canal expansion on breakbulk and containerized traffic, researcher Anthony Ross at the University of Wisconsin-Milwaukee’s Lubar School of Business, concluded that as a result of the canal’s looming expansion, export growth in seven eastern states — led by New York, Georgia and South Carolina — already has exceeded forecasts. But beyond the main East Coast container ports, Ross said major Gulf Coast breakbulk ports could enjoy significantly higher cargo volumes, especially as they strengthen their port and highway infrastructures over the next 18 months or so. “The assumption that only eastern states will have a cost advantage to using the canal may not be true,” he said. “The dynamics of steam time, ship size and fuel surcharges can be important drivers extending the north-south running westward” along the Gulf Coast, including the ports of Houston and Gulfport, Mississippi. Breakbulk volumes in Houston, Gulfport and other ports along the Gulf eventually could benefit from a delay in the expansion of the canal, as some breakbulk shippers in the U.S. Midwest divert their traffic away from West Coast ports, Ross said. In many cases, it has been more cost-effective and faster to ship by land to and from West Coast ports, when the trading partner is in Asia. The Panama Canal should be thought of as a strategic bridge between Asia, the east coast of North America and to South America. The oncoming development of Interstate 69 down to Houston will make it faster and more cost-effective for some breakbulk shippers to truck their goods to Houston, rather than ship them cross-country to Long Beach, Ross noted. “If we look at breakbulk shippers along that corridor, all the way down from Fort Wayne (Indiana) to Houston, what’s to say that this doesn’t represent an opportunity for them, moving forward to the future?” he suggested. Ross noted a hypothetical engine manufacturer in West Memphis, Arkansas, could ship directly from its plant straight into Houston, rather than all the way to Long Beach. “The turnaround time in Long Beach is about three weeks, and my inventory was going to sit there” for perhaps a few weeks. With major infrastructure improvements being made at the Port of Houston as well as on the highways that lead to it, “that lead time goes down. If my lead time goes down, my carrying costs are going to go down, and my pipeline inventory cost as a shipper goes down because I can move my products out much more quickly.” Thus, a further six-month delay in the Panama Canal opening “can benefit shippers along the I-69 corridor in that they will have a quicker turnaround time for moving their goods out of the secondary ports,” such as Houston, that compete with Long Beach. Ricky Kunz, managing director at the Port of Houston, doesn’t expect any spike in breakbulk activity from the canal’s expansion, however. The port handled about 4.8 million tons in pipe imports in 2013, “so this is a huge cargo for the Port of Houston — including all the private terminals that are importing steel products. We are the largest pipe port in the U.S., primarily driven by the oil and gas sector,” the major shale gas activity in Texas and what goes north. But “the delay in completing the third set of locks is not going to affect what (volumes of steel pipe imports) we are getting from Asia on a weekly basis,” Kunz explained. “The breakbulk vessels that we get are the size that are just not affected by the completion of the third set of locks. The ships are up to about 750 feet maximum, and even though we see breakbulk ships getting bigger over time — and they will continue to do so — we don’t see any impact from the delay.” Steel pipe and other similar traffic largely originates in Asia and arrives at U.S. West Coast ports. It is then carried inland to other U.S. destinations. Or, it could come via the Panama Canal, to be unloaded in East Coast ports where customers are located closer to those ports. “Our ships are of the size that the new expanded canal is not going to have one bit of difference on whether we can get our ships through or not. We don’t have any ships close to the size of maxing out our ability to transit,” Kunz said. As far as heavy-lift is concerned, it is not typically the size of the ship, but the lifting capacity of the vessel that matters. “Most project carriers, heavy-lift operators — their ships don’t even come close to the capacity of the canal,” he said. Even roll-on, roll-off vehicle carriers, such as Wallenius Wilhelmsen, have no trouble transiting the canal with their largest vessels, he added. Still, Ross said the Panama Canal expansion “actually brings many of those other secondary ports into view as an alternative for shippers because around these ports, there will be ancillary industries that may have an industry opening there — and all of the related support industries to spur the local economy could be another incentive.” He cautioned, however, that this doesn’t mean breakbulk manufacturers should divert most, if not all, of their traffic to these secondary ports. “I am not advocating that companies should divert all of their movements — but in the short term, they should at least get acquainted with — and learn — from a process point of view, what are some of the complexities of shipping out of alternative ports (on the Gulf Coast.) And as those ports’ capacities grow, shippers may divert more out of Long Beach.” Ross advised breakbulk shippers operating east of the Mississippi River to “continuously evaluate their total landed cost” in view of the changing market dynamics, and follow developments. Walter Kemmsies, chief economist at port and infrastructure consulting firm Moffatt & Nichol, noted that while a lot of people in the United States are looking at how the Panama Canal expansion can impact U.S. imports, a more important question may be, “How does it support U.S. exports?” He said the canal expansion could become a boon for U.S. exporters of project cargo and other non-containerized manufacturing equipment. “The expansion will make it cheaper for the U.S. to export production goods, such as project cargo,” because the expansion will lower the cost of moving such goods from the U.S. to major markets outside North America, Kemmsies said. U.S.-made breakbulk equipment destined for energy production will be moving on larger vessels, thanks to the canal expansion, which will mean more capacity and lower per-ton rates for shippers of such equipment. Share JOC NEWS - OCT 3 2014
Posted on: Fri, 03 Oct 2014 16:20:52 +0000
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