15 March 2011
The expansion of the Panama Canal will be a “game-changer” for world trade, and the U.S. east coast will gain by hosting giant ships that will soon be able to cross the passageway from Asia.
The biggest winners will be those coastal areas that can dredge their ports deep enough to hold the megaships and then, efficiently transport their freight by land to other U.S. regions.
But other east coast areas will gain too, as the giant ships displace smaller vessels to shallower ports.
Those were among the key conclusions at a special WorldCity Trade Connections event held with The Realtors Commercial Alliance of Miami and attended by more than 200 people on Feb. 18.
“There will be winners and bigger winners, as opposed to winners and losers” from the canal expansion slated for completion in 2014, said Los-Angeles-based John Carver, who leads real estate giant Jones Lang Lasalle’s global port and airport practice.
New business will extend far beyond seaports, too. As cargo volumes rise, companies will need warehouses to store the goods; offices for employees handling increased trade; plus new links with trucks, railroads, brokers and others to move the freight from ports inland. That means ample opportunities for real estate, panelists told a standing-room-only crowd.
The Port of Miami is seeking $75 million in federal funds to complete financing to dredge its channel to 50 feet to welcome the mega-ships. But the seaport faces hurdles to funding in deficit-strapped Washington DC, said Eric Olafson, the Miami port’s cargo development manager.
Miami Port Director Bill Johnson is undeterred in his push for cash, convinced that the dredging project can spur 33,000 new jobs in the Miami-Dade area. “He’s threatened to chain himself to the White House fence to get his money,” Olafson said, prompting chuckles from the crowd.
(Update: Three weeks after the event, Florida Gov. Rick Scott promised to provide the funding shortfall for the project after it failed to make the Obama administration budget.)
A bit of history helps explain why the canal expansion represents such a revolution.
The Panama Canal opened in 1914 as an engineering marvel, linking the Atlantic and Pacific oceans and slashing transit times for U.S. Navy ships and other vessels that no longer needed to round South America to cross between the seas.
But in recent decades, ships have soared in size, and many no longer fit in the existing canal. These megaships departing Asian ports, often referred to as post-Panamax vessels, since they are wider than the maximum that can traverse the canal, now drop off their freight on the U.S. West Coast and send it by train or truck cross-country, reducing potential business for Panama and U.S. east coast ports, said Rodolfo R. Sabonge, vice president of market research and analysis for the Panama Canal Authority.
The freighters are getting bigger because companies can reduce the cost of carrying each of the metal shipping containers they haul. Giant vessels can slash costs for Asia-U.S. transit by as much as $90 per shipping container, representing “millions of dollars in savings for larger ships,” Sabonge said.
The world’s biggest freighters today can carry about 15,000 “boxes,” containers that are generally 40-foot in length and easily transferred to rail and tractors for trucking. South Korean’s are large ship builders and one is now planned that can handle 18,000 TEUs – 20-foot equivalent units, the standard measure in the industry.
That monster will hold enough containers that end to end would stretch 66 miles. It’s four times bigger than what the ships that now fit through the Panama Canal, Sabonge said.
To handle those mega-ships, Panama is investing more than $4 billion to add a wider and deeper third-lane to the canal. Building is “on schedule and under budget,” Sabonge said. The recession helped reduce costs, as construction companies were eager for new work and prices for building materials fell.
“At the end of the day, the project is going to be coming in at least 20 percent less than budget,” Sabonge said in a detailed presentation that featured photos of building sites and spreadsheets on costs.
Numerous U.S. east coast ports are vying to welcome the giant freighters that will soon cross the canal, with some still seeking funds to dredge to 50 feet. Miami could be the southernmost seaport to host the mega-ships.
“New York/New Jersey is ready. Norfolk (in Virginia, a U.S. Navy installation) is ready. Savannah and Charleston have a big debate about which is going to get the money, but from there on south, there is nobody,” Sabonge said. “The one that can do it first is there to stay…. It really becomes a matter of politics.”
The canal expansion comes as South Florida set a new record for trade in 2010, topping $95 billion in goods shipped in and out to international ports. This year, South Florida’s trade with the world should top $100 billion, as Brazil and other key Latin American partners buy more cell phones, jet engines and high-tech goods shipped from greater Miami, said WorldCity President Ken Roberts.
Rising trade already is boosting demand for warehouses and logistics in South Florida – even before the canal is expanded, according to Arcelio Girard, general manager of FTZ World Services, which runs the Miami Free Zone, and Gary Goldfarb, executive vice president of logistics provider WTDC.
Yet hosting the giant ships that will soon cross the canal represents “a once in a lifetime opportunity” to send cargo and jobs soaring in South Florida, said Port of Miami manager Olafson. With Miami dredging complete, “this community stands to benefit in the billions of dollars.”
Trade Connections is one of seven event series that WorldCity organizers to bring together executives on international business topics. The trade series is sponsored by shipping company Seaboard Marine, Port of Miami, American Airlines Cargo and Miami-Dade County Aviation.
The next Trade Connections event is set for May 10.