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Competition heats up as U.S. ports prepare for Panama Canal expansion

Five mega ships — one as long as three-and-a-half football fields — line the wharves of this bustling port as towering cranes pluck containers stuffed with products destined for the shelves of Southeast retailers.

While tourists may know Savannah for its historic homes, ancient azaleas and leisurely charm, its port based in Garden City — about a 10-minute drive from downtown — also happens to be the second-largest container port on the East Coast.

Too large to transit the Panama Canal, the ships known as post-Panamax vessels have arrived in Savannah’s river port via the Suez Canal and with the help of high tide. It helps, too, that they are not fully loaded.

“The Panama Canal has always been a speed bump for us,’’ said Curtis J. Foltz, executive director of the Georgia Ports Authority.

But not content to rely on the vagaries of tides and light loads, Savannah wants to dredge its 42-foot-deep channel to a depth of 47 feet — deep enough to handle the big ships that will transit the Panama Canal once its expansion is completed in 2015.

That’s 40 miles of dredging from the Atlantic to Garden City — and it doesn’t come cheap. It adds up to $652 million, with the federal government expected to chip in about 60 percent.

Savannah is hoping to win big when the canal expansion is completed, but so are Miami, Port Everglades, Jacksonville and ports from Houston to New York, which want to attract the big ships that can carry more than twice as many containers as the vessels that now transit the canal.

There will be winners and losers, but no one wants to be left out of the race as ports arm themselves with deeper harbors, stronger wharves, larger cranes and other improvements in hopes of snagging the big ships.

Norfolk, Va., and Baltimore already have harbors deep enough to handle the super-size ships, but Baltimore needs to overcome transportation bottlenecks once the containers reach port. The Port Authority of New York and New Jersey expects to have its harbor deepened to 50 feet by 2014, but it still must raise the deck of the Bayonne Bridge 64 feet above the roadway so the ships can reach the port’s main terminals.

“If all the ports are preparing, you’re probably going to get excess capacity,’’ said Daniel L. Gardner, president of Los Angeles consulting firm Trade Facilitators and a logistics expert. “There may be a few white elephants decorating the East Coast.’’

There’s a limited pot of federal money for the expensive channel deepening projects and Florida reached into its own pocket to help finance the Miami dredging project when federal funds didn’t materialize.

During congressional testimony last year, Paul Anderson, chief executive of the Jacksonville Port Authority, lamented that the federal government has bestowed “step-child” status on the nation’s ports for too long and argued that the United States needs to invest in them.

The typical American consumer, he said, “gives little thought to how products move to the shelf at their local supercenter or mega-grocery or mom and pop, how the item we need is ready for purchase as we dash in to grab that container of coffee or computer part I shudder to think of the outcry should our consumer products get stuck on the docks because we no longer have the infrastructure to move them.’’

Perhaps indicating which ports it thinks should be the winners in the race for deep water, the Obama administration announced in July that expansion and modernization plans would be expedited for five ports: Savannah, New York and New Jersey, Charleston, Jacksonville and Miami. Such projects can take years to get off the ground and a green light from the administration is important.

“Clearly the administration thinks these port projects are very important and need to be addressed,’’ Foltz said.

“It’s all about the post-Panamax world,’’ said PortMiami Director Bill Johnson. He spent years lobbying for federal funding for Miami’s $180-million “deep dredge” before Gov. Rick Scott announced last year that the state would kick in the remaining $77 million “so that Florida can take another leap forward in international trade.”

But Steven M. Cernak, director at Broward County’s Port Everglades, said the need for deep water goes well beyond expansion of the canal.

A new generation of post-Panamax ships is coming online, he said, and they will gradually replace older, smaller ships. “All the ports have to be ready for that day,’’ Cernak said. “We’re already seeing this size of vessels.’’

In October, the MSC Texas, with a capacity of 8,200, 20-foot containers, became the largest ship ever to call at Port Everglades. But because of the depth limitations, it wasn’t fully loaded.

With an environmental lawsuit behind it and the necessary approvals in place, Miami appears likely to win the race among the U.S. ports that don’t currently have water deep enough for post-Panamax traffic. It hopes to be ready for the 2015 launch of the canal expansion.

Meanwhile, Savannah, a port that handles almost as many containers as Miami, Port Everglades, and Jacksonville combined, is facing lawsuits from environmentalists who say the dredging requires a pollution certificate from South Carolina. The dredging, they contend, will stir up toxic cadmium from the Savannah River bed and deposit it on the South Carolina side of the river.

“I think anyone dealing with a project of this magnitude has lawsuits,’’ Foltz said.

But Savannah got good news in late October when the Army Corps of Engineers completed its review and gave final approval for the deepening project.

Regardless of the outcome of the lawsuits, Foltz said, the federal government made it clear, “it won’t let a state stand in the way of a project of national interest.” U.S. Assistant Secretary of the Army Jo-Ellen Darcy said if necessary, she would seek an exemption to the Clean Water Act “to prevent inappropriate delays to this project due to pending litigation.”

Foltz said he expects the digging to get under way by mid-2013, with work completed by the second half of 2016. The project also includes a mitigation plan that will help restore and improve the nearby ecosystem, which includes the Savannah National Wildlife Refuge.

While Savannah will miss the target date for the launch of the canal expansion by about a year, Foltz said 80 to 90 percent of Savannah’s navigational improvements should be ready by then.

Miami plans to award the contract for its “deep dredge” early next year. It’s also building a four-lane tunnel for truck traffic that will link directly to the interstate highway system, avoiding the current trek through downtown traffic.

A $50 million rail project, which will rehab tracks, reconstruct a rail bridge and improve links from the port to the FEC rail yard near Miami International Airport, is expected to be completed by next summer. The port is devoting 15 acres to build three parallel rail tracks that will allow half-mile-long trains.

“The local markets aren’t big enough to support what is coming off the vessels,’’ said Kevin Lynskey, assistant port director for business initiatives. “A big ship needs the rail link to make their economies work.”

When the rail projects are finished, “we’ll be able to connect with 70 to 78 percent of the American population by rail,’’ said Johnson, the PortMiami director. “Without rail, what does the deep dredge mean? Zero.’’

Ditto for the $915 million port tunnel. “If you want to stagnate in 2015, you don’t build a tunnel,’’ Johnson said.

Without any of the $2 billion in upgrades that are in the works, he said Miami would have to content itself with being a small regional port.

With Miami’s three-pronged attack — tunnel, rail, and dredging — the port claims it will be able to make inroads into some of the markets that Savannah now dominates.

A brochure prepared by PortMiami claims that after a three-day trip from Panama, it can have cargo in Atlanta in two additional days and in Memphis in three more days using a Florida East Coast rail connection.

While a ship takes 1½ days more to reach Savannah than Miami, Foltz points out the Atlanta market is just four hours away by truck.

“Reaching into our market? Good luck. That’s a stretch,’’ said Savannah’s Foltz. “We’re getting cargo destined for Orlando and Tampa now.’’

“Savannah is not going to sit idly by and let anyone take away its northern Europe and Asia business,’’ said John Martin, a Pennsylvania-based port consultant who has advised most major U.S. ports. “Savannah is an excellent port.’’

But he’s also bullish on Miami. Having its three major projects come together more or less at the same time is a “major grand-slam homerun,’’ he said. It puts Miami in a position to become a gateway port, win back its trans-shipment business, and become a distribution hub.

Plus, he said, with the trend toward near-sourcing — sourcing manufactured products in Mexico and Central and South America because of rising labor costs in China and mounting Asian transportation costs due to high fuel prices — both Miami and Port Everglades are well-positioned to capture North-South trade.

So which ports are the front-runners when the big ships begin transiting the canal?

Experts shy away from the question, but they do say it’s not simply a matter of dig a deep enough shipping channel and the big ships will come.

The port, its rail connections, trucking networks, distribution channels and the entire logistics chain needs to be analyzed and there are ripple effects all along the way. If a factory needs imported parts and supply routes for those parts are better elsewhere, it might just pick up and relocate.

Pricing, the degree of bureaucracy, security, labor peace, and the ease of getting products through customs also play into shippers’ decisions to use a particular port. So does proximity to certain products. That’s why Savannah’s main exports are forest products, kaolin clay from Central Georgia, cotton, chemicals and poultry.

“But you need to start with the port and the port has to be ready. You need to plan for what will happen in the next 20 years. We’re in a globalized world,’’ said Alberto Alemán, the former chief executive of the Panama Canal Authority. “These ships are not going to be waiting for anyone.’’

Savannah, where a steady stream of trucks carrying everything from frozen chicken destined for China to imported furniture and air conditioners arrives and departs, is a port that has long prided itself on responding to the changing world of global trade.

In 1945, the main port moved 12 miles up the river from its historic location when the state purchased a large tract of land that included an old cotton plantation. The move gave the port plenty of room to develop into a 1,200-acre container terminal with rail yards for CSX and Norfolk Southern, scores of refrigerated racks to hold containers, and more than 100 cranes that work both the wharves and the yards. By next year it will have 16 of the massive cranes needed for servicing post-Panamax ships.

More than 40 million square feet of distribution centers for companies such as Kohl’s, Home Depot, Wal-Mart Stores, Target, IKEA and other top retailers have been carved out of the piney woods that surround the port, which has played an active role in recruiting them.

Already truckers can get in seven to 10 trips a day but the port is expected to become even more efficient when a connector that will take I-95 directly into the port is completed in 2014, rail capacity is expanded and other improvements are made.

Savannah was a big beneficiary when a strike closed down the ports of Long Beach and Los Angeles for 10 days in 2002, prompting big shippers to experiment with all-water service to the East Coast.

West Coast ports such as Los Angeles and Long Beach, the two busiest container ports in the United States, have become the major gateways for U.S.-Asia trade. By using rail and truck links, they can get cargo to the East Cost faster than ships that use an all-water route to ports such as Savannah or Miami.

“We’ve never looked at the expansion of the canal as a way to move cargo faster,” said Rodolfo Sabonge, vice president of market research and analysis for the Panama Canal Authority. “It’s a way to move cargo cheaply or more reliably. The larger ships are less expensive to move per unit of cargo.’’

Shipping products via the Panama Canal on a post-Panamax ship could represent a savings of 25 to 30 percent.

But experts say the West Coast ports will still be favored for high-value cargos and time-sensitive shipments, such as plasma TVs that must reach stores in time for Black Friday sales. The canal’s sweet spot will be handling lower cost shipments where margins are important but delivery times are more flexible, Sabonge said.

“The West Coast attitude is the ports aren’t ignoring [the canal expansion] but they’re much more convinced it won’t be such a big event,’’ Gardner said.

Foltz agrees. Most of the shift in cargo from the West Coast has already occurred, he said, and Savannah doesn’t expect to pick up much more West Coast cargo after the expansion.

But the port does expect continued growth. Currently, it handles three million, 20-foot containers annually and expects to more than double that when the port is fully built.

Even with the hefty $652 million cost of dredging, “there’s a tremendous cost/benefit ratio,’’ Foltz said. The Army Corps of Engineers calculates that every dollar spent on the project will return $5.50 in economic benefits to the nation. Already the port supports 352,000 full- and part-time jobs across Georgia, Foltz said.

Despite competition among U.S. ports, how the race for deep water plays itself out isn’t a major concern for Panama — as long as there are some U.S. ports that are ready.

“Five or six major ports could be plenty,’’ said Sabonge, of the Panama Canal Authority. “We just want to bring a new and improved canal to market. It’s just a business proposition.’’

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