Panama Canal expansion’s ripples felt in US

Ports from the Gulf Coast to New York are getting ready to handle some of the biggest container ships to pass through the newly improved gateway to Asia. The Port of Houston installed four new cranes in 2016 capable of handling container boxes on the biggest ships. (Port of Houston Authority)

Focus article by Lane Kelley

HOUSTON (ICIS)–The $5.3bn expansion of the Panama Canal that just opened last week has prompted a huge wave of expenditures in the US as a handful of east coast ports prepare for larger ships.

The canal project, which with a new third lock will enable larger ships to transit to and from Asia, targets the eastern US as a major market because of population density in the region.

One idea behind the canal expansion is that containers full of Asia-made clothes – and other things, including petrochemicals – will no longer have to unload at US west coast ports and then travel a few days by rail to Chicago or Philadelphia.

Instead, the containers will head directly to the Gulf Coast or South Carolina or New York, taking days off the travel time.

One irony of the widening of the path between the seas is that it has driven a wedge between US west and east coast ports, and the two regions in general.

“That’s the theory,” said Larry Gross, a partner at FTR Transportation Intelligence, adding that there has been much hyperbole about the canal’s prompting a regional conflict. “Now that the great moment has arrived, though, not so much.”

Gross said the east-west conflict in the US was going on before the canal expansion began.

West coast ports claimed 52% of US container volume last year, down from 54% in 2014 and 57% in 2010, according to a report from CBRE, the world’s largest commercial real estate services and investment firm.

The shift accelerated last year as shippers had to reroute their cargo amid labour strife at west coast ports, helping east and Gulf Coast ports, including Savannah, Georgia; New York; New Jersey; and Charleston, South Carolina, to capture most of the 4.6% increase in US container traffic in 2015, the report said.

This Landsat 8 colour satellite image shows Panama City, Panama, and the canal in late 2013. (Planet Observer \ UIG/REX/Shutterstock)

US polyethylene (PE) export statistics also show the east-west conflict.

In the year 2000, the amount of PE exports leaving from the US Gulf Coast was in the low- to mid-50% range, according to data from Accenture.

Since then, the PE export figure has grown to 79% through Gulf Coast ports, according to recent monthly data from the American Fuel & Petroleum Manufacturers (AFPM).

The Panama Canal expansion converged with a boom in North American PE plant projects, prompting what has been called a “race to the bottom” among US ports.

Ports must dredge shipping channels to 50 feet or deeper to handle bigger container ships that should be able to transit the widened Panama Canal.

The containers will carry, among other things, PE packed in bags on vessels carrying thousands of shipping containers, known as TEU (20-foot equivalent units) in the trade.

Getting ready for new Panama Canal traffic

A wave of new plant construction focused on ethylene and other derivatives that is expected to come online in the next three years could increase US PE capacity by as much as 50%.

The magnitude of the PE boom will require that most of the added capacity be exported. 

One US port official has estimated that the PE boom will create an additional 500,000 containers annually, which is 23% of the total containers that Houston handled in 2015, according to the Federal Maritime Commission (FMC).

So there is more PE coming, most of it for export and most of it to be made in Texas and Louisiana.

This is where the “race to the bottom” becomes a regional contest, because the busiest leg of the race is on the US east coast.

Houston is the nation’s petrochemical hub and also one of the largest ports on the Gulf Coast. PE watchers say that, as of only a few years ago, petrochemical producers saw the canal widening project as providing them with a big advantage: They could make pellets in Texas or Louisiana and then export the bagged product on post-Panamax or even super-post Panamax vessels going through the widened canal.

Bigger ships reduce shipping costs. Doubling the size of the vessel lowers the shipping cost by 40%, goes one shipping rule of thumb.

The Panama Canal expansion will cut the trip from the US Gulf Coast to Asia to about 20 days, compared with 31 days through the Egypt’s Suez Canal or 34 days around Africa’s Cape of Good Hope, according to Houston-based ship broker Poten & Partners.

A decade or so ago, the Houston port did not receive any container ships from Asia. Now three of its 18 weekly scheduled arrivals come from Asia via the Panama Canal.

Port Commission chair Janiece Longoria said that Houston is positioned for increased trade through the canal to and from east Asia, “currently our fastest growing container trade lane”.

But unlike other ports, Houston cannot dredge much deeper.

Deepening the Houston Ship Channel to 50 feet (the deepest point now is 45 feet) to match the new canal locks would require extending the waterway 11 miles into the Gulf of Mexico until the ocean floor slopes to naturally meet that depth, according to a synopsis of a feasibility study by the Greater Houston Port Bureau.

Besides the “race to the bottom’ at ports, the canal widening has also prompted a race to build polymer packing plants in Texas.

Deals announced in May would build two facilities in the Dallas-Fort Worth area for transporting plastic pellets in hopper cars from the Gulf Coast.

The hopper cars – mostly from the Houston area – would go to sites in Dallas-Fort Worth where the pellets will be packaged and transferred into shipping containers that will travel by rail to the US west coast for shipment to Asia.

Houston the petrochemical hub is also a hub for chemical shipping. But the widening of the canal most likely will have little or no influence on that sector, said Basil Karatzas, chief executive of Karatzas Marine Advisors & Co in New York.

“Those vessels are fairly small, I don’t think it will change that [chemical shipping] market,” Karatzas said.

A new set of floodgates arrive for the Panama Canal expansion in 2013 aboard the South Korean vessel Sunrise. (MAURICIO VALENZUELA/REX/Shutterstock)

INSET IMAGE: A cargo ship passes through the old Gatun Locks in 2013. (Design Pics Inc/REX/Shutterstock)