May/June 2013
The Panama Canal expansion could soon bring larger ships to the East Coast and Gulf Coast. Exporters hope this will create opportunities to ship scrap more quickly and cheaply, but are the ports ready for this traffic?
By David F. Crosby
The Panama Canal has not had a size overhaul since its construction in 1914, even though ships that are too long, wide, and deep to fit through its locks began to launch in the 1960s. The Bridge of the Americas, which stretches across the Pacific entrance to the canal at Balboa, also restricts ship height to 190 feet above the waterline (205 feet at low water). Panamax ships—the largest ones that can fit through the locks and below the bridge—typically carry 65,000 to 80,000 deadweight tonnage, but because of the canal’s shallow draft (39.5 feet in tropical fresh water), these ships can carry only 52,000 DWT while transiting it. The narrow width of the Culebra Cut, the nearly eight-mile-long artificial channel that crosses the Continental Divide, also prevents large vessels from safely passing one another, forcing this stretch of the canal to become a one-way street during their transit.
Recognizing the canal’s need for an overhaul, the Panama Canal Authority, or ACP (Panama City, Panama), held a referendum in October 2006 asking Panamanian voters to approve the expansion. It passed, earning 78 percent of the popular vote. Construction began in 2007 with a scheduled completion date of October 2014. The ACP estimates that the locks will open for traffic in mid-2015. The expansion project will cost an estimated $5.25 billion and, once in operation, it will be paid off in 11 years.
The expansion requires dredging the Atlantic and Pacific entrances to the canal and widening the channels, dredging the navigation channels and widening them in some locations to handle larger vessels, and installing three new sets of “post-Panamax” locks, each 427 meters long, 55 meters wide, and 18.3 meters deep. The ACP reports the new locks will be easier to maintain and have a basin system that uses 7 percent less water than the old locks, reuses 60 percent of that water, and fills the locks faster—in 10 minutes compared with 17 minutes for the old locks. The post-Panamax locks will accommodate container vessels that can hold 13,000 20-foot-equivalent units, or TEUs, compared with the Panamax locks’ 5,000-TEU maximum. The old locks limited container vessels to 294.1 meters long and 32.3 meters wide, with a draft of 12.4 meters. The new locks can handle a container vessel 366 meters long and 49 meters wide, with a draft of 15.2 meters.
The ACP expects the expansion program eventually to double the canal’s capacity, says Javier Ho, a dry bulk expert with its market research and analysis department, but the move to larger ships will be gradual. “We are going to attract fully-loaded capesizes [ships that can hold more than 80,000 DWT] between 100,000 and 150,000 DWT; partially loaded capesizes around 175,000 DWT and 180,000 DWT that can meet draft restrictions; and capesizes around 185,000 DWT that can fit in the new locks but will have to transit in ballast.”
There’s no doubt the Panama Canal expansion will change global trade, but no one knows exactly how. Cargo typically flows along the most efficient and least expensive path. Over time, this has consistently reduced shipment cost as a proportion of a product’s value. In 1960, it cost 15 percent of a product’s value to ship it over the ocean. Today it costs just 1 percent, despite higher fuel prices, labor costs, taxes, and fees, as well as the increased cost of environmental compliance. Most experts expect post-Panamax cargo flows to remain true to this basic law of logistics.
Scrap exporters are likely to save an average of 25 percent by shipping on post-Panamax vessels rather than the smaller Panamax ships, according to Eric Olafson, manager of intergovernmental affairs and cargo development for the Port of Miami. Robert Sirianni Jr., CEO of scrap and coal trading firm Crush Metals (Winter Park, Fla.), anticipates both lower shipping costs and faster shipping as larger vessels begin to ply the old Panamax trade routes. “We get better rates shipping [on] 100,000-mt-plus vessels than we do using a 75,000-mt vessel. It will reduce the costs of container shipments as well,” he adds, “because the shipping lines can add more containers per vessel.” He plans to adapt to the changes accordingly. “We would like to gear up [to handle] larger shredded scrap shipments in the next few years. If our break-bulk prices are reduced, we will be more competitive shipping large coal and scrap metal shipments to India and China aboard large break-bulk vessels.”
In addition to lowering costs, the expansion is likely to encourage the migration of cargo flows away from West Coast ports and toward East Coast and Gulf Coast ports. An October 2011 Cambridge Systematics (Cambridge, Mass.) study for the Texas Department of Transportation (Austin, Texas) points out that congestion at the West Coast ports of Los Angeles and Long Beach, which handle most sea traffic from Asia, often leads to costly delays. Further, rail transportation costs from these ports to the rest of the country have increased, and shipments have become less reliable. At the same time, large retailers and commodity importers and exporters have built large distribution centers and warehouses near East Coast and Gulf Coast ports to exploit an “all-water route” strategy—one that keeps their cargoes on the water for as long as possible to avoid delays and added expense. The Panama Canal expansion will likely accelerate this migration.
Which ports are best positioned to take advantage of the canal expansion? That, too, depends on several interrelated factors that affect cargo flows: a port’s efficiency and costs, infrastructure (channel depth, cranes, and so on), distribution center network, transportation network—both road and rail—and market for imported and exported products. Because post-Panamax ships have different minimum infrastructure needs than the smaller Panamax ships, ports’ ability to accommodate such ships will factor into their attractiveness to shippers. To be considered post-Panamax- ready, a port must have a channel depth of at least 50 feet with a width and turning basin that can accommodate the larger ships. It must have post-Panamax cranes on the dock to unload and load the larger ships. Such cranes—the largest in use today—can unload a vessel that’s more than 22 containers wide. And a port must have docks engineered to handle the new cranes and the additional container traffic that’s likely to accompany them.
Second-tier ports must prepare for the cascade effect that will occur when post-Panamax ships begin deploying to major U.S. ports, displacing smaller vessels on those trade routes, according to a June 2012 report by the U.S. Army Corps of Engineers’ Institute of Water Resources (Alexandria, Va.). Displaced vessels will begin serving the next route that can most efficiently handle them. Ultimately, this will increase the average vessel size along all trade routes. The IWR rates a port as “cascade-ready” if it has a channel depth of 45 feet.
Ports that are neither post-Panamax-ready nor cascade-ready could still benefit from post-Panamax traffic, however, according to the Army Corps of Engineers. Because most U.S. ports will not have the depth or infrastructure to handle post-Panamax ships, the Corps believes a transshipment hub will develop at a large, post-Panamax-ready U.S. or Caribbean port, such as the Port of Miami. Post-Panamax ships will unload their cargo at the transshipment hub, where it will get loaded onto smaller vessels that can dock at these shallower ports.
Post-Panamax ships already are 16 percent of the world’s container fleet, and they hold 45 percent of the world’s shipping capacity. The IWR report estimates these ships will be 27 percent of the world’s container fleet and carry 67 percent of its capacity by 2030. Whether or not projected trade route changes occur, here’s how some U.S. Gulf Coast and East Coast ports are preparing to accommodate these ships.
Gulf Coast Ports
Most Gulf Coast ports serve niche and regional markets, and most cannot justify spending billions of dollars dredging a 50-foot-deep channel. Instead, many have focused on upgrading their facilities and cranes and achieving a channel depth of 45 feet.
Houston. With an inland transportation network that serves a market of 100 million people, the Port of Houston has captured 70 percent of the container market in the Gulf of Mexico. To prepare for the mid-2015 opening of the Panama Canal expansion, the port has coordinated with the Texas Department of Transportation and railroads to further improve its inland transportation network to handle additional traffic. It has installed post-Panamax cranes, expanded its Bayport Terminal, and is modernizing its Barbours Cut Terminal.
The Houston Ship Channel is 45 feet deep, and the area around the container terminal is 40 feet deep. “We plan on taking the area around the two container terminals and the turning basin down to 45 feet to match the ship channel,” says Stan Swigart, market development manager for the port’s trade development and marketing division. “We believe that is sufficient to handle the post-Panamax vessels that will be deployed in the Gulf. We will be ready to handle these ships by year-end 2014.”
New Orleans. The Port of New Orleans lies at the mouth of the Mississippi River, a major inland waterway for barge traffic and an important route for transporting commodities, including scrap. Major railroads serve the port as well. The port channel is normally 47 feet deep and 450 feet wide, but a lack of state and federal dredging funds has occasionally left the port’s depth as low as 42 feet for months at a time, according to news reports of a June 2012 speech Gary LaGrange, the port’s president and CEO, made to the Louisiana chapter of the Association of Corporate Growth (New Orleans). Even without that problem, however, its wharf—which ranges in depth from 30 to 38 feet—is not nearly deep enough for post-Panamax ships, and the port does not have the funds for deeper dredging.
Tampa. The Port of Tampa does not plan to increase its channel depth beyond its current 43 feet. Tampa specializes in break-bulk and niche cargo—including, notably, scrap metal—but it is expanding its container operations. By its calculation, it can accommodate 80 percent of the container vessels plying the oceans and 86 percent of the bulk carriers. Its “2010 Strategic Plan Update,” dated June 2011, agrees with the U.S. Army Corps of Engineers’ prediction that a post-Panamax, deep-water port will become a transshipment hub, making Tampa a destination for smaller vessels.
East Coast Ports
Miami. Miami will achieve post-Panamax status by June 2015, says the port’s Olafson. “Our first major project—on-dock rail—will be complete [this] June,” he says. “This will speed the loading and unloading of heavy loads such as scrap metal,” which is now 9 percent of its exports. The port also is building a tunnel that will lead directly from the terminal area to major roadways to speed truck arrivals and departures. Four super-post-Panamax cranes will arrive from China this November. “Eventually we would like to have 17 in the port,” Olafson says. On the water, “we are dredging 50 feet [deep] all the way out to the buoy,” with the project likely to finish a month or two before its scheduled June 2015 completion date.
Miami hopes to become a transshipment hub among Europe, South America, the Caribbean, and Asia—most notably China, which is currently the destination for 18 percent of its trade. It expects to accommodate post-Panamax vessels not only from the Panama Canal expansion but also from Europe and the Suez Canal. “We have a huge geographic advantage over other post-Panamax ports,” Olafson asserts. “We are the first post-Panamax port a ship will pass after traveling through the Panama Canal and the last before it enters.”
Jacksonville, Fla. Recognizing that the port cannot compete in the post-Panamax world at its current depth of 40 feet with a 2-foot tide, JaxPort’s board of directors asked the U.S. Army Corps of Engineers in February to dredge the port down to 47 feet—the depth of its closest competing port, in Savannah, Ga. “It’s not a pun to say the maritime freight world is in a sea change, and it’s all driven by depth,” said John E. Anderson, JaxPort’s treasurer, in a statement released Feb. 27. Because a Corps draft report recommended a depth of only 45 feet, the port would have to pay for the additional two feet of depth itself. The dredging plan has not received approval or a start date.
JaxPort has two post-Panamax cranes in place, and it has upgraded its logistics facilities to handle any type of cargo, it says.
Savannah, Ga. The Port of Savannah has a channel depth of 42 feet and a 7-foot tide. The U.S. Army Corps of Engineers has approved a $652 million project to increase the channel depth to 47 feet, making it post-Panamax-ready during high tide. The dredging will begin in 2013 and take several years. At high tide, the channel will be post-Panamax capable.
Savannah has had super-post-Panamax cranes since 2008, and post-Panamax ships already dock there, arriving from Asia via the Suez Canal. They enter the port at high tide without a full load.
Charleston, S.C. With a channel depth of 45 feet and a 5-foot tide, the Port of Charleston can accommodate post-Panamax vessels at high tide. The port intends to dredge to a depth of 50 feet, with the project’s expected completion between 2015 and 2017. The South Carolina General Assembly has allocated $300 million for the project, though the state hopes to secure federal funding for 40 percent of that cost.
Charleston’s docks have eight super-post-Panamax cranes and 10 post-Panamax cranes ready to work. Its Columbus Street Terminal has dockside rail access—always a boon when moving heavy loads like scrap metal—and it handles break-bulk and bulk cargo as well as containers. Port Georgetown—Charleston’s inland port 60 miles north—also handles break-bulk and bulk cargo. Bulk commodities such as steel often are handled at Port Georgetown and transported by rail to Charleston Harbor or inland.
Norfolk, Va. The Port of Norfolk also is post-Panamax-ready, with 50-foot-deep channels further aided by a 2-foot tide, post-Panamax cranes, and docks and facilities engineered for loading and offloading these large ships. Norfolk is likely to become a major international transshipment hub for fully loaded post-Panamax ships, which will offload their cargo there into smaller feeder vessels that will deliver the cargo to ports with shallower channels. The port also has rail service from Norfolk Southern Corp. (Norfolk, Va.) running east and west and CSX Corp. (Jacksonville, Fla.) running north and south.
Baltimore. With a 52-foot-deep channel and seven super-post-Panamax cranes, Baltimore is post-Panamax ready. It has rebuilt its Seagirt Marine Terminal and deepened the waters around it. Like the Port of Norfolk, it plans to serve as a major transshipment hub.
New York and New Jersey. A 50-foot-deep channel with a 4-foot tide gives the Port of New York and New Jersey more than enough depth to support post-Panamax traffic, but the port faces one impediment: the Bayonne Bridge, which needs to raise its 151-foot air draft to 215 feet to accommodate post-Panamax ships passing below it to the container terminals on the New Jersey side. The bridge’s new road deck will be in place, and the old deck removed, by fall 2015, according to the Port Authority of New York and New Jersey (Jersey City, N.J.). Environmental and community-health concerns could delay that plan, however. In December, the U.S. Environmental Protection Agency (Washington, D.C.) expressed “fundamental concerns” about a draft environmental assessment from the U.S. Coast Guard (Washington, D.C.) that concluded raising the deck would not have a significant environmental impact, according to news reports. The Coast Guard will decide by May 24 whether it will allow work to begin or produce an environmental impact statement, which could take up to
a year.
Port officials are touting the environmental benefits of the project. “Raising the roadway will allow larger container ships—burning less fuel per container and deploying the latest ballast water and other environmentally friendly technology—to enter our port,” Port Authority Executive Director Pat Foye said in a press release. The bridge project will cost
$1 billion.
Impact on Scrap Exports
According to the ACP’s Ho, the volume of scrap metal transiting the Panama Canal has declined since its fiscal years 2002-2004 peak of 2.3 million long tons. The ACP does not have a specific long-term forecast for scrap, he says, but “in terms of scrap metal moving from East Coast ports in the United States to Asia, we do not expect a significant increase in this traffic.” Crush Metals’ Sirianni disagrees. He sees new opportunity when the Panama Canal expansion opens for business in mid-2015. “The ability to ship [using] a 100,000 to 120,000 mt capesize vessel will enable us to source more coal and steel scrap internationally,” he says. “Currently, we can only ship [on] Panamax vessels. Our overseas clients will be pleased with our ability to ship coal and scrap metals into China and India faster, cheaper, and in greater volume.”
David F. Crosby is a freelance writer based in Bastrop, Texas.
The Panama Canal expansion could soon bring larger ships to the East Coast and Gulf Coast. Exporters hope this will create opportunities to ship scrap more quickly and cheaply, but are the ports ready for this traffic?