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Panama Canal expansion to bring benefits to PortMiami — slowly

First megaship to pass through expanded Panama Canal arrives in Miami

PortMiami officially joined the Neopanamax era on Saturday, July 9, 2016, when the MOL Majesty became the first ship to arrive at the port after transiting the newly expanded Panama Canal.
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PortMiami officially joined the Neopanamax era on Saturday, July 9, 2016, when the MOL Majesty became the first ship to arrive at the port after transiting the newly expanded Panama Canal.

The MOL Majesty — the first container ship to reach Miami after passing through the expanded Panama Canal — was greeted with a water cannon salute on July 9 and a dockside celebration. Speaker after speaker extolled Miami’s arrival in the big-ship era before settling down to an all-American barbecue.

The Miami celebration echoed the excitement that swept Panama three weeks earlier when the COSCO Shipping Panama, a ship owned by a Chinese line, made the first voyage through the canal’s new locks. Fireworks lit the sky above the canal. And a baby born that Sunday was even named Cosco Martínez.

Ever since Panamanians voted overwhelmingly a decade ago to modernize the waterway that has been the path between the Atlantic and the Pacific since 1914, the expanded canal has been hailed as a game changer. But now that it’s a reality, the benefits for Panama, PortMiami and other U.S. East and Gulf Coast ports are expected to be more gradual than immediate.

 

Josh Green, chief executive of Panjiva, a New York-based trade data company, compares the effort to supersize the canal to the arrival of the iPhone 6 Plus: It’s needed to stay competitive, he said, but it’s hardly a game changer for world trade. In the same way that the original iPhone transformed the smartphone industry, the original canal radically changed world trade.

There are several factors hampering the $5.5 billion canal expansion from being an out-of-the-gate winner. For starters, a sluggish world economy means there’s too little cargo at a time when larger ships have brought overcapacity to the shipping industry. And only three East Coast ports, including PortMiami, are ready to handle fully loaded mega-ships — the so-called neo-Panamax ships that are the largest vessels that can pass through the revamped Panama Canal.

Other East Coast ports that had hoped to deepen shipping channels to handle ships that are too long, too wide and too heavy for the original canal have run into environmental and funding hurdles that have delayed their projects.

There is some federal money available for dredging projects, said Mario Cordero, the chairman of the Federal Maritime Commission. “Is there enough money? No,” he said. “That’s been one of the challenges.”

 

Cordero, who was in Miami for the arrival of the Majesty, praised the infrastructure improvements PortMiami has made to be big-ship ready and to ease traffic flow on and off the port. “This is a great day for Miami in terms of being a major player,” he said after a trip aboard a fireboat for a close-up view of giant cranes unloading the ship.

As neo-Panamax ships go, the 991-foot Majesty, part of a Japanese company’s fleet, is small. Juan Kuryla, director of PortMiami, said he expects ships the size of the Majesty will now arrive at the port on a weekly basis. He’s hopeful they will be the forerunners of even bigger ships.

A turning point for Miami in jump-starting its “deep dredge” project was the $77 million the state of Florida contributed in 2011. Gov. Rick Scott said that Florida couldn’t wait for the federal government to come to the table with its contribution for the project. Now he wants reimbursement from the federal government.

Slow global economy

There’s little that ports can do to counteract the most significant drag on any windfall from the canal expansion: timing. The Panama project was finished almost two years behind schedule in the midst of a global economic slowdown that is eroding cargo volumes. With shipping lines increasingly building big ships, there’s more capacity than cargo, and profit margins are very thin.

The theory behind the expansion is simple: Shippers will save money because neo-Panamax vessels can carry three times as much cargo as the ships that transit the old Panama Canal. That means fewer transits and more fuel savings. But for the theory to reach its potential, there has to be cargo — lots of cargo.

In the first 18 days of operations, 18 ships used the new lanes of the canal and Panama took in about $8 million in revenue, said Jorge Quijano, administrator of the Panama Canal Authority. As of Thursday, the number of passages had climbed to 28 and more than 170 reservations have been made for transits. [Fees are averaging around $500,000 per transit but can range up to more than $800,000 for a bigger ship.]

So far, most of the passages have been by container ships, but on July 25 and July 26, the first LNG tankers — tank ships designed for transporting liquefied natural gas — have made reservations to use the new locks.

 

The largest ship that has ever transited the Isthmus of Panama — the 10,200-TEU-capacity, 1,105-foot-long container ship MOL Beyond — successfully passed through the new locks in early July. But Quijano said he expects the record to be repeatedly broken by ever bigger ships.

The original locks can only handle ships with a capacity of 5,000 TEUs — the equivalent of standard 20-foot containers. Lengthwise, the Beyond wouldn’t have been able to squeeze into the 1,000-foot-long chambers of the old canal, either.

Quijano acknowledges “the world economy is slow” now and the economies of the canal’s three top users —the United States, China and Chile — have been sluggish. “The canal is doing well, but there will be more opportunities when the economies of the world pick up,” he said. “We are just a link in the big chain of cargo moving around the world.”

Last fiscal year, a record 340.8 million tons of cargo passed through the canal, and it contributed a record $1.043 billion to Panamanian coffers, Quijano said. “We’re trying to reach that point this year,” he said. But even with the expansion open, he said, it will be difficult.

“Most shipping lines have not yet deployed regular mega-ship service, and the numerous pressures faced by shippers — including overcapacity and plummeting shipping rates — are likely to delay adoption of this strategy,” according to a report from Los Angeles-based CBRE, the world’s largest commercial real estate service and investment firm. “Companies likely will continue weighing the cost and benefits of gradually replacing smaller vessels along their established routes to increase efficiency over the next several years.”

With a limited amount of cargo at play, East Coast ports and Panama itself — a growing transshipment center for cargo that moves through the canal — are competing to eat each other’s lunch.

PortMiami is relying on becoming a first port of call, where the big ships will discharge cargo before continuing up the East Coast to drop containers at other ports that might not yet have deep water but can handle bigger ships that aren’t fully laden. The Majesty, for example, unloaded cargo in Miami before continuing to Jacksonville, Savannah, Charleston and Norfolk.

The port spent $1.3 billion to deepen its shipping channels from 44 to 50-52 feet, reinforce its wharves, build a port tunnel that gets trucks off city streets and connects directly to the interstate highway system, and to build a rail link to the Florida East Coast rail yard.

The Florida Strategy

That rail link is a key component in PortMiami’s quest to win back more cargo that is used in the Sunshine State. A Florida Chamber of Commerce Foundation study several years ago found that although Florida has 15 seaports, about 45 percent of the containerized cargo consumed here arrives at ports in other states. In 2014, the Florida Ports Council reconfirmed those findings.

“We’re determined to get that back,” Kuryla said. He hopes that deep water will be the turning point for the port. Last year PortMiami handled just over 1 million TEUs of cargo. The goal, he said, is a 25 percent increase, or the addition of 250,000 TEUs, by 2020.

To reach that goal, he said, the port hopes to pick up more Asian and, to a less extent, Mediterranean traffic.

That big ships will come to Miami is “no gamble at all,” Kuryla said. The question is how much cargo will be unloaded and loaded aboard those ships, he said.

James Hertwig, FECR president and chief executive, said Asian cargo arriving in Miami could be in Central Florida and Jacksonville, which doesn’t have deep water, by the next day using the FEC rail link and in the Atlanta area by the day after that.

Hertwig said he has a lot of respect for the Port of Savannah — a big rival of Miami for cargo destined for the Southeastern United States, but “you have to go up a 25-mile river and there’s a lot of fog. Here there’s just two miles from the sea buoy to the port.”

More cargo arriving in Miami and being moved north would also help with the railroad’s back-haul problem and make shipping by rail more efficient. “Now for every four loads being sent to South Florida by rail, we have one load being returned,” he said.

Hertwig also likes the idea of more Florida cargo being delivered in the state — a huge market in and of itself. “Florida is the third most populous state and has 100 million visitors each year — and some of these visitors stay for six months. Florida is just a huge consuming area,” he said.

When he brings potential clients to PortMiami and they see the combination of deep water, rail link and tunnel, Hertwig said they are impressed. “They had no idea what is here,” he said.

“Miami has a tremendous amount of benefits, but it is a new sell,” he added. “I think you’ll start seeing more ocean carriers working with Miami and testing it. The contract season is around April and May. With Miami’s deep water and the expansion completed, by next year things will start to jell.”

Miami used to rely on transshipment business — cargo being discharged from bigger ships and then loaded on to smaller feeder vessels that call at ports in the Caribbean and Latin America — for about 25 percent of its business. But more stringent security inspections after 9/11 raised the cost of shipping through U.S. ports and caused delays. Nearly all PortMiami transshipment business shifted to offshore ports.

But Kuryla said the inspection process has become more streamlined and PortMiami hopes to see a transshipment revival over the next two years.

“Transshipment is competitive, but Miami will probably get some of that business back,” said David Egan, CBRE head of industrial and logistics research in the Americas.

Miami is ahead of the game, however, because it does have deep water.

The only other deep-water ports along the Eastern Seaboard are Norfolk, Virginia; Baltimore; and the Port of New York and New Jersey. But fully laden big ships can’t call at the latter port until the road bed of the Bayonne Bridge is raised so big ships can fit underneath.

After nearly two decades of trying, Port Everglades is still waiting for congressional approval and federal funding so it can realize a $374 million plan to deepen and widen its main navigational channels from 42 to 48 feet. The port is now in the pre-construction engineering and design phase of the project.

But a coalition of environmental groups has complained that the U.S. Army Corps of Engineers hasn’t done enough to assess potential damage to fragile coral reefs during dredging and has threatened to sue. During dredging in Miami there was more extensive coral damage than anticipated. “We are looking at what happened in Miami and trying to see how we can do better,” said Ellen Kennedy, a Port Everglades spokeswoman.

In Savannah, a $706 million dredging project is underway, but the port is still in the hunt for federal money and the deepening isn’t expected to be completed until 2018.

Savannah, however, has other advantages: proximity to a major population center, rail yards for both SCX and Norfolk Southern on port, more than 150 cranes, more than 3 million square feet of warehouse space within 30 miles of the port, and massive distribution centers for companies such as Kohl’s, Home Depot, Wal-Mart Stores, Target and IKEA nearby.

Competing against such established supply chain networks is the uphill battle that PortMiami and FECR face as they try to take on other East Coast ports that many big shippers favor because they’re closer to the bulk of the U.S. population.

“Savannah is perfectly located for broad distribution, but it is a river port,” Egan said. In his view Miami is so far south that it’s not a good Southeast distribution point.

But he said it’s realistic to try to win back Florida-bound cargo from other ports. “Yes, absolutely. That’s very much in play,” he said. “Florida is a very large state with a ton of consumers and it is growing.”

The rail connection, he said, is a key component of making Miami’s Florida cargo strategy work.

West Coast competition

With the Panama Canal expansion finally completed, East Coast ports with deep water are hoping to attract some of the Asian cargo that now arrives in West Coast ports and is sent by rail or truck to distribution points in the Midwest and the East Coast.

An all-water route via the expanded canal is the most economical, but the West Coast alternative is quicker and shippers with time-sensitive cargoes that must arrive for the Christmas season, for example, will continue to favor speed over cost-savings.

For less urgent cargoes, a route through the expanded canal to an East Coast port might be more attractive. “Shipping lines are under a lot of cost pressure,” Hertwig said. “I”m firmly convinced Miami is the solution.”

In 2007, the year after Panamanians gave the green light to the canal expansion, cargo was split with around 60 percent going to the West Coast and 40 percent going to East Coast ports, Egan said. Labor unrest at the West Coast ports in recent years already has caused some shipments to shift to the East Coast, and the balance is now about 52 percent, West, and 48 percent East.

“The East Coast will probably get a bit more. Short-term won’t bring massive, game-changing gains for East Coast ports because much of that repositioning already occurred in recent years,” Egan said. “But it will shift U.S. cargo delivery from slightly favoring the West Coast to a more even split between the two coasts.”

The Boston Consulting Group and C.H. Robinson estimate a 10 percent diversion of East Asia cargo from West Coast to East Coast ports by 2020 — a figure that Manuel Benítez, deputy administrator of the canal authority, thinks is about right.

Benítez said he expects some of the shipping lines that shifted bigger vessels to Suez Canal routes because they couldn’t fit through the original locks will return to Panama. “I don’t think they want to put all their eggs in one basket,” he said.

The payoff for the expanded canal and the improvements undertaken by ports, Egan said, will most likely be reaped in the medium term — about 15 to 20 years out. “It is something that had to be done, and long-term it will be a good thing,” he said.

Total trade at PortMiami

For the year ending Sept. 30, 2014, the shipping traffic at the Port was 50 percent from the Americas and Caribbean; 34 percent from the Far East; 11 percent from Europe; and 5 percent from the Middle East and Africa.

A historical snapshot of the cargo volumes at PortMiami:

Item

2011

2012

2013

2014

2015

TEU*

906,607

909,917

901,454

876,708

1,007,782

Cargo ships docked

1,936

1,649

1,348

1,231

1,422

Inbound tonnage

3,845,666

3,886,315

3,961,208

3,871,906

4,567,926

Outbound tonnage

4,376,090

4,222,135

4,019,319

3,827,980

4,045,813

Total tonnage

8,222,374

8,108,450

7,980,527

7,699,886

8,613,739

*Twenty Foot Equivalent Unit — the unit of the capacity of a container ship and container terminal

Source: PortMiami

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