Panama Canal expansion draws delegates from U.S. seaport states

PANAMA CANAL ZONE — After waiting out an early-afternoon downpour, Vice President Joe Biden and the U.S. delegation emerged into the humid heat to tour the $5.2-billion canal expansion.

Baltimore Mayor Stephanie Rawlings-Blake snapped pictures with her cellphone. Philadelphia Mayor Michael Nutter beamed with curiosity as he walked and questioned a site supervisor.

“Something big is happening here,” Biden said in an obvious understatement, eliciting laughs from the group of mayors and lawmakers from several seaport cities and states.

Conspicuously absent from the show-and-tell were representatives from the biggest ports in the country, Los Angeles and Long Beach. Not that they weren’t keenly aware of the visit.


Southland harbor officials have long been following and preparing for the widening of the Panama Canal as a potential threat to existing routes and business.

The Port of Los Angeles, the nation’s top container port, is spending $1.2 billion over five years to upgrade facilities and equipment. This month, it announced a plan to pay shipping lines for every new 20-foot container they move through the San Pedro Bay next year, an incentive to strengthen ties with carriers.

But as last week’s tour of the canal illustrates, officials in Georgia, Florida, Maryland and other states along the Gulf Coast and Eastern Seaboard are racing to stake their claim in a global trade and logistics world that is shifting.

Shipping companies are rethinking conventional routes and practices amid not only the Panama Canal project but also aggressive plans by Canada and Mexico to lure cargo operators to call at their waters.

In some ways, the ports of Los Angeles and Long Beach may have the most to lose simply because they are by far the dominant movers of containers.

With the rise of China and other Asian economies, the two ports’ traffic has nearly quadrupled since 1990 to more than 14 million containers last year. By value, Los Angeles and Long Beach handled 39% of all container imports and 24% of all container exports that, combined, totaled about $930 billion last year.

For American seaports in the East and South, the opening of the expanded Panama Canal in 2015 holds the promise of significant gains in business, some of it long dominated by the Los Angeles region. And their efforts to become more competitive are getting fresh impetus from the Obama administration.

U.S. officials are eager to help East Coast and Gulf Coast cities cash in on the deeper new lane across Panama, which opens the way for gargantuan shipping vessels to come to their ports. Biden’s visit to Panama with the delegation was part of a broader push by the White House to spur the nation’s economic growth by boosting the country’s infrastructure and trade.

The arrival of so-called Post-Panamax vessels into U.S. trade lanes is expected to have “substantial implications” for the nation’s shippers, harbors and so-called surface freight corridors, said a Department of Transportation study released this week on the Panama Canal expansion and its effects.

The more economical service of the bigger vessels, for example, could improve the ability of U.S. exports such as grain, coal and petroleum to compete in global markets, the study found.

The 200-page report, though, also noted that lower shipping costs through the Panama Canal could lead some cargo owners to re-route goods now being moved through the West Coast, particularly lower-value products. At the same time, “the costs of transportation through West Coast ports would also be expected to drop due to the use of larger ships and improvements in rail services,” it said.

Atlanta Mayor Kasim Reed, who was part of the delegation visiting Panama, has long been advocating modernizing the port in Savannah, Ga., so it could handle the larger container ships.

The campaign to deepen that harbor has been in the works since 1999, he said, but more recently federal agencies have expedited approvals for major improvements of Savannah and four other Eastern ports.

“They all see themselves as beneficiaries of a widening Panama Canal,” said Jock O’Connell, a trade expert at Beacon Economics in Sacramento.

Georgia has pledged $231 million for the project, but Reed is looking for the federal government to chip in some $400 million for the work of dredging and extending the harbor’s depth to 47 feet from 42 feet. Reed doesn’t see the Savannah port being ready until 2017 or 2018, but reckons it will pay off big in the long run.

With the South and the West leading the country’s population growth, he said, and manufacturing increasingly shifting to the South, Savannah would be a natural point for importers and exporters alike.

“Either we deepen or we’re going to be in a period of decline,” Reed said.

For Reed and other mayors and lawmakers visiting Panama, the trip was about seeing the canal expansion and getting a clear — and urgent — sense of the dramatic transformation and opportunities coming.

While traveling, they called to talk to radio hosts back home and other local media to tell them what they were seeing — all part of the sales job to keep the projects going in their states. Biden also did his part, calling radio stations in Florida, Georgia and Pennsylvania to offer an enthusiastic account of the canal’s progress.

Aides to the vice president said that California port officials weren’t invited to the tour because the Western ports were already equipped to handle the big ships — a major competitive edge at the moment.

What’s more, the shipping route distance is significantly shorter from northeast Asia, where the bulk of goods are manufactured, to the West Coast ports: 14 days to Los Angeles and Long Beach versus 21 days to Houston and 22 to Savannah, according to the Transportation Department study.

Still, federal officials acknowledge that they don’t know yet whether the canal expansion will divert some of those large Asian cargo ships from California to the East Coast. That depends on several factors, they said, including how high the fees will be for passing through the canal.

It’s also hard to predict whether companies shipping to the East Coast will choose to spend money on fuel to sail through the canal or instead dock in California and transport goods across the country by rail and truck.

Shorter delivery times are especially important for higher-value goods, and that gives the Southland ports a big advantage.

More than 70% of all cars and 85% of electronics and precision instruments that are imported by water from northeast Asia arrive in Los Angeles, Long Beach and other West Coast ports. The East Coast ports, led by New York-New Jersey, take in a much greater share of lower-value products such as rubber and plastics.

Larry Cottrill, director of master planning for the Port of Long Beach, doesn’t think the effects of the expanded Panama Canal will be dire, partly because many shippers tempted by alternative shipping routes already have switched after a lockout by shipping companies in 2002. In the last five years, he said, the ports of Los Angeles and Long Beach have held on to their share of the cargo from Asia.

“We aren’t complacent by any stretch,” Cottrill said. “Both ports are leading in expanding and improving.”

Yet analysts note that the Long Beach port commission’s challenges include its current leadership vacuum and internal dissension. The port has yet to hire an executive director after J. Christopher Lytle left for the Port of Oakland in the summer.

Meanwhile, Long Beach Mayor Bob Foster’s effort to remove the port commission board’s president finally won City Council approval with a 6-3 vote Tuesday to oust Thomas Fields.

“The Port of Long Beach is rudderless right now,” said O’Connell, the Sacramento trade specialist.

The Port of Los Angeles is in a better place administratively and has been busy making improvements to head off the increased competition. This year it is spending $400 million to improve the rail yard, road transportation, power system and wharf areas, officials said.

Port officials in Los Angeles said they were aware of Biden’s trip with the delegation to Panama, but they downplayed the potential threat from the canal expansion and the rise of other seaports in the East and the South.

Kathryn McDermott, the port’s deputy executive director for business development, said she visited the Panama Canal two years ago.

“This is a really amazing public works project to watch,” she said. “But in the meantime, while this has been under construction, we here at the Port of Los Angeles have also been focusing on our infrastructure.

For now, she’s taking a wait-and-see approach.

“Ships are mobile assets, and they can make changes to their deployment,” she said.

Parsons reported from Panama Canal Zone, Lee from Washington, D.C. Shan Li in Los Angeles contributed to this report.