Southern LegiSLative ConferenCe

of

AN ISSUE ALERT FROM THE SLC

Sujit CanagaRetna
Senior Fiscal Analyst Southern Legislative Conference September 2012

the CounCiL of State governmentS

he ongoing Panama Canal expansion is perhaps the most transformative global transportation project currently in progress. Upon completion in 2014, the expanded Panama Canal will facilitate an even greater flow of trade between Asia and the Americas and substantially impact the volume of trade reaching Gulf and East Coast ports in the United States. The impetus for the expansion of the Canal, approved by the people of Panama in October 2006, sprang from that nations desire to continue to be a pivotal player in global trade patterns and strategically leverage its greatest asset the Panama Canal for its own economic wellbeing. For the nation of Panama (the only port in the world with terminals in two oceans), the Canal plays an extraordinary role, impacting practically every aspect of society; at the economic level, economic activity flowing from the Canal accounts for nearly 15 percent of gross domestic product (GDP), a clear indication of the enormous economic footprint of the Canal on the nation. The expansion project not only will ensure the Canals dominance as one of the most critical global transportation linchpins, it also will strengthen the linkages between Asia, the United States and Latin America. A few decades after the American-led effort to construct the Panama Canal, completed in 1914, discussions on expansion plans already were underway. The 48-mile waterway connecting the Pacific and Atlantic Oceans, known as the Panama Canal, then constituted, and still remains, one of the most revolutionary water navigational channels in history. In fact, during the years leading up to World War II, there were serious discussions and preliminary excavations on this expansion effort, but this

initial impetus fizzled out. In the six or seven decades after World War II, the role of the Canal was magnified with the immense growth in global trade. As the first decade of the 21st century advanced, this surging world trade resulted in horrendous traffic jams at the Canal, with dozens and dozens of gigantic ships on the Atlantic side, laden with grain from the Midwest, computer and electronic products from Florida, coal from Appalachia heading to Asia and, on the Pacific side, crammed with consumer durables and electronics from Asia heading to the American East Coast dropping anchor and waiting their turn to transit the Canal. The approximately 14,000 vessels carrying 280 million tons, or 5 percent, of the worlds ocean cargo were being slowed down considerably due to tremendous volumes of sea-borne traffic at the Canal. Even though officials were running these shipping behemoths through the Canal around the clock, the delays to the shipping companies were prohibitive both in terms of costs and wait times. Along with the massive growth in cargo volumes, the other discernible trend emerging in the shipping industry was the construction of massive new vessels. Ever since the opening of the Canal nearly a century ago, the dimensions of cargo ships, naval vessels, and passenger ships have been determined by their ability to traverse the Panama Canal. In fact, nautical terminology was adjusted to refer to a Panamax vessel, i.e., a vessel that could be accommodated in the Canals 110-foot wide lock chambers. For nearly 90 years, the vessels that moved most of the worlds trade were able to fit into these lock chambers. These Panamax vessels had the capacity to carry a maximum load of about 5,000 TEUs (twenty-foot equivalent units, the nautical term for a standard container).

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UPDATE: THE PANAMA CANAL EXPANSION AND THE SLC STATES

Figure 1 Pre- and Post-Expansion Vessels Transiting the Panama Canal

Source: Panama Canal Authority, February 2011 (as presented in http://www.iwr.usace.army.mil/docs/portswaterways/rpt/June_20_U.S._Port_and_ Inland_Waterways_Preparing_for_Post_Panamax_Vessels.pdf)

Then, a new generation of vessels that exceeded the current capacity of the Canals lock chambers emerged and posed enormous infrastructure challenges, another development that propelled the expansion effort. For instance, the Mrsk Lines Gudrun Mrsk has the capacity to carry close to double the capacity of the current class of vessels that transit the pre-expansion Panama Canal.* These inordinately large vessels are referred to as Post-Panamax vessels and, increasingly, are being deployed to transport cargo across the globe as manufacturers, distributors,
* There are even larger vessels sailing the oceans now. For instance, the Mrsk Lines PS-class vessels have the capacity to carry nearly three times the container load of the Panamax vessels; the Emma Mrsk is capable of carrying 15,500 TEUs and has an overall length of 1,302 feet, a width of 184 feet and a draft of 51 feet. The Emma Mrsk and her seven sister ships, Ebba Mrsk, Edith Mrsk, Eleonora Mrsk, Elly Mrsk, Estelle Mrsk, Eugen Mrsk and Evelyn Mrsk, are identical and the wave of the future in the shipping industry.

shipping companies and interested others seek to take advantage of the economies of scale involved with their usage. Experts estimate that these Post-Panamax vessels currently account for 16 percent of the worlds container fleet and, more importantly, 45 percent of the capacity of the fleet, a stark reminder of their growing influence in the global shipping industry. Furthermore, the U.S. Army Corps of Engineers reports that these numbers are projected to grow significantly over the next two decades: by 2030, these Post-Panamax vessels are expected to constitute 27 percent of the worlds container fleet and 62 percent of its capacity. Figure 1 provides a graphical representation of the transformation of the vessels that will be transiting the Canal after the expansion. The new class of Post-Panamax vessels will be
For the purposes of this publication, the term Post-Panamax refers to vessels that can be accommodated in the Panama Canal once the expansion is completed.

2 UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES

The MSC Bruxelles, measuring 1,105 feet long by 151 feet wide, a 49-foot draft, and a 9,200 TEU capacity, is an example of the kind of vessel that will be able to pass through the expanded Panama Canal in 2014. Photo courtesy of the Port of Virginia.

40 percent longer, 64 percent wider and require a 50-foot draft to transit the Canal. The new administrator of the Panama Canal Authority, Jorge Quijano, commenting on the introduction of these Post-Panamax vessels after the expansion noted that, [W]e see a significant interest in using vessels of 10,000 TEUs and up earlier rather than later. But we expect to see early deployment of the 8,000- to 10,000-TEU vessels and gradually move up to the 12,000to 13,000-plus-TEU ships that can fit in the new locks. Shipping experts and policymakers both within and outside Panama realized the importance of the expansion effort to accommodate the surging cargo volumes being transported across the oceans by this fleet of supersized ships. In fact, along with Panamas desire to be an integral player in future global trade, another driving force for the current expansion effort was the enormous gains to be realized by the power of economies of scale. Entities up and down the supply chain, at every level, realized the considerable financial gains - and improvements in operational efficiency, productivity and profitability with the deployment of larger and larger vessels. As an example, Mr. Alberto Alemn Zubieta, administrator and CEO of the Panama Canal Authority, in a presentation in August

2012 noted two important examples of the lower costs associated with Post-Panamax vessels transiting the Panama Canal. First, a transshipment of coal between the Port of Baltimore to Xiangang, China, in a Panamax vessel (preCanal expansion) costs about $35 per ton; the same amount of coal, between the same two cities, in a Post-Panamax vessel would cost approximately $10 cheaper (or $25 per ton). Second, grain transported to Asia from the American grain belt would cost about $55 per ton in a Panamax vessel and the lower cost of $50 per ton on a Post-Panamax vessel. (Administrator Alemn commented that the land bridge option, i.e., across the United States to a West Coast port from the East Coast remains the most expensive option; in the example of a ton of grain, this transportation mode would cost $95 per ton). Shortly after the 2006 referendum in Panama, work on the expansion and modernization effort ($5.25 billion at the time of inception) began. In essence, the project involves the construction of two new sets of single-lane locks one on the Pacific side and one on the Atlantic side of the Canal. The new, concrete lock chambers will be 1,400 feet long, 180 feet wide and 60 feet deep, while each lock com-

UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES 3

Figure 2 Panama Canal Expansion Effort from Atlantic and Pacific Entrances

Source: Panama Canal Expansion - Diagram of Panama Canal Locks, Popular Mechanics, October 1, 2009.

plex will stretch for more than a mile and a half in length, creating the largest lift complex in the world. While each lock will have three chambers, each chamber will have three water reutilization basins. Despite the abundant rainfall in Panama, engineers working on the Canal have been cognizant of the need to conserve water because the Canals watershed (the 166-square-mile, manmade Gatun Lake) supplies drinking water to nearly the entire population living in the vicinity of the waterway. Given that nearly 2 billion gallons of water currently are needed to fill the locks for transiting ships every day, the expansion effort could have required an additional 2 billion gallons of water, an enormous strain on the regions

water resources. However, in an innovative move based on the locks system on the Elbe River in Germany, engineers working on the Panama Canal expansion devised a unique water recycling system with the construction of three new water reutilization basins. These basins cumulatively will secure nearly two-thirds of the water from the locks as they empty, which will then be recycled and used for the next vessel that travels through the Canal. With the expansion, the new lock chambers will not only retain 65 percent more water than the current locks, they also will use 7 percent less water per transit. In addition, the expansion project includes two new navigational channels to link the new locks to existing

4 UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES

A Post-Panamax vessel, the MSC Rita measures 1,063 feet long by 141 feet wide with a 48-foot draft when fully loaded at 8,100 TEU. Photo courtesy of the Port of Charleston.

navigational channels, a measure that will result in excavating nearly five miles of new channel. The current navigational route through Gatun Lake also will be deepened by five feet and widened from the 500-foot minimum to 920 feet on straightaways and 1,200 feet on the turns. In addition, Gatun Lake will be elevated and raised one and a half feet, generating an additional 550 million gallons of water each day for the locks. Upon completion, workers on the expansion project will have dredged 130 million cubic meters (4,591 million cubic feet) of rock and soil or, more descriptively, enough rock and soil to fill the Empire State Building nearly 130 times. Not only will the expansion effort be sufficient to accommodate the largest Post-Panamax vessel, it doubles the Canals capacity. Figure 2 provides a graphical representation of the expansion project from both the Atlantic and Pacific entrances. As mentioned at the outset, intertwined with Panamas strong support of the expansion of the Canal is the me-

teoric rise in international trade in the last two decades. Experts quickly are realizing that U.S. exports are a bright spark in the otherwise relatively anemic economic recovery currently in progress. For 13 consecutive quarters (between the second quarter of 2009 and the second quarter of 2012), U.S. exports have expanded and the expectation is for continued progress in this area, generating jobs and economic opportunities for Americans across the nation. Importantly, the U.S. Department of Commerce estimates that every $1 billion in exports generates 15,000 jobs, a sizable number indeed. A number of factors have propelled this solid export performance, including the low value of the dollar (which raises the competitiveness of U.S. products in international markets) and the strategic efforts of U.S. multinational corporations to market such items as aircraft, motor vehicles and petroleum products. Table 1 documents the progress of U.S. exports in the last few years.

UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES 5

Table 1
State / Territory Texas California New York Washington Illinois Florida Louisiana Michigan Unallocated Ohio Pennsylvania New Jersey Georgia Indiana Tennessee North Carolina Massachusetts South Carolina Wisconsin Kentucky Minnesota Alabama Utah Arizona Oregon Puerto Rico Virginia Connecticut Iowa Missouri Mississippi West Virginia Maryland Kansas Nevada Colorado Nebraska Arkansas Oklahoma Idaho Delaware Vermont North Dakota New Hampshire Alaska New Mexico Maine Washington, D.C. Rhode Island Montana South Dakota Wyoming Virgin Islands Hawaii United States

U.S. Exports to the World, 2005, 2009, 2010, 2011 and Q1-Q2 2012 and Percent Change (in thousands, $USD)
2005 2009 2010 2011 Change, Change, Change, Change, 2005 to 2009 to 2010 to 2005 to Q1-Q2, 2012 2009 2010 2011 2011 130,779,079,370 81,964,984,835 41,891,340,877 35,101,854,950 35,055,332,553 33,094,041,374 28,370,233,961 28,333,793,048 25,664,093,490 24,615,439,576 20,283,987,551 19,580,104,170 17,559,606,476 17,190,782,775 15,749,923,544 14,017,599,476 13,510,502,577 13,049,499,269 11,658,419,550 10,746,787,908 10,316,600,298 10,073,886,380 9,708,309,374 9,203,742,879 9,034,601,591 8,937,798,591 8,871,809,371 8,233,355,759 7,710,563,751 7,535,067,319 6,220,734,236 5,850,246,411 5,797,722,907 5,784,813,771 4,976,958,272 3,947,681,054 3,902,243,471 3,827,553,824 3,352,465,763 2,750,938,110 2,645,004,007 2,085,323,954 2,046,256,822 1,836,308,715 1,740,491,019 1,542,030,426 1,468,397,663 1,398,834,709 1,244,657,630 787,765,063 778,300,464 718,471,126 508,856,216 295,734,342 773,350,932,618 26% 3% 13% 57% 15% 40% 68% -14% -1% -3% 27% 29% 15% 6% 7% 12% 7% 18% 12% 18% 5% 14% 70% -6% 20% 58% 23% 43% 23% -9% 57% 53% 29% 32% 44% -13% 62% 36% 2% 18% 70% -31% 84% 20% -9% -50% -4% 32% 18% 47% 7% 38% 111% -45% 17% 27% 19% 19% 3% 20% 18% 27% 37% 36% 22% 23% 18% 22% 25% 27% 14% 11% 23% 18% 10% 22% 25% 34% 11% 19% 9% 14% 15% 20% 36% 30% 34% 10% 11% 4% 15% 19% -1% 21% 33% 15% 33% 16% 43% 27% 21% 42% 38% 30% 32% 25% 6% 56% 21% 21% 21% 11% 22% 21% 29% 17% 33% 14% -1% 12% 18% 19% 20% 12% 16% 8% 6% 21% 11% 4% 7% 15% 38% 14% 4% -20% 5% 1% 22% 10% 33% 40% 7% 17% 35% 9% 30% 7% 16% 15% 11% 0% 34% -2% 28% 36% 8% -31% 17% 14% 16% 24% 22% 29% 16% 94% 36% 64% 96% 79% 94% 183% 35% 33% 32% 84% 81% 68% 49% 56% 38% 26% 77% 47% 34% 38% 64% 214% 19% 48% 37% 48% 66% 80% 35% 172% 186% 52% 72% 102% 8% 152% 45% 44% 80% 117% -9% 185% 68% 47% -18% 47% 26% 80% 122% 54% 82% 301% -14% 64% 129,346,156,716 162,994,740,450 206,960,767,594 251,005,673,768 116,689,901,804 120,079,965,765 143,192,250,991 159,121,792,333 51,840,964,871 58,743,030,056 69,695,634,935 84,887,562,296 33,078,176,892 51,850,856,743 53,353,413,033 64,766,844,750 36,168,606,637 41,626,110,699 50,058,293,734 64,823,414,516 33,443,890,512 46,888,006,761 55,364,760,752 64,904,313,111 19,403,622,081 32,616,451,452 41,355,870,039 54,976,078,091 37,848,627,094 32,655,333,884 44,768,187,457 51,003,027,609 33,942,777,524 33,619,608,007 45,697,621,518 45,286,080,134 35,110,493,790 34,104,484,238 41,493,512,722 46,415,700,981 22,333,839,455 28,381,102,168 34,927,694,246 41,074,879,584 21,107,184,847 27,244,246,431 32,153,593,976 38,114,577,064 20,656,953,025 23,743,041,911 28,949,552,263 34,776,304,710 21,593,812,900 22,907,367,488 28,744,977,002 32,282,315,399 19,173,896,519 20,484,299,844 25,942,724,022 29,993,138,751 19,507,118,126 21,792,953,156 24,905,063,910 27,008,756,550 22,051,608,163 23,593,277,279 26,303,601,826 27,761,320,278 13,959,863,465 16,488,111,133 20,328,687,951 24,697,462,187 14,961,410,086 16,724,996,880 19,789,522,286 22,055,118,359 14,960,603,690 17,649,768,303 19,342,737,535 20,083,680,609 14,736,123,922 15,531,557,833 18,903,725,389 20,318,743,624 10,879,227,812 12,354,803,017 15,501,508,839 17,854,217,255 6,067,039,030 10,337,135,031 13,809,376,642 19,033,516,351 14,947,279,684 14,023,462,270 15,635,757,846 17,793,213,040 12,407,214,133 14,907,405,450 17,671,067,072 18,310,101,768 13,270,606,097 20,937,064,690 22,784,088,942 18,200,275,820 12,238,353,364 15,052,091,034 17,163,324,645 18,088,836,844 9,749,851,769 13,978,898,792 16,056,449,947 16,211,927,999 7,372,804,672 9,042,125,564 10,880,026,652 13,306,810,612 10,513,779,116 9,522,229,617 12,925,559,774 14,153,831,541 4,020,816,268 6,316,488,807 8,228,851,021 10,930,321,504 3,161,171,533 4,825,570,207 6,449,180,362 9,034,015,060 7,138,361,224 9,225,376,423 10,163,267,062 10,852,469,923 6,736,019,931 8,916,920,376 9,905,219,429 11,598,460,663 3,941,005,948 5,672,185,096 5,911,812,450 7,977,768,260 6,773,305,392 5,867,265,731 6,726,706,628 7,332,497,256 3,003,380,987 4,872,924,899 5,819,949,181 7,582,290,200 3,870,933,045 5,266,978,589 5,218,646,154 5,607,245,809 4,322,420,618 4,414,915,717 5,353,190,640 6,221,504,505 3,273,308,589 3,877,389,493 5,156,919,667 5,904,889,386 2,535,367,190 4,311,773,339 4,965,544,823 5,509,511,785 4,672,094,793 3,219,270,656 4,277,417,496 4,256,644,212 1,191,735,128 2,193,011,373 2,536,428,341 3,393,096,575 2,557,496,011 3,060,715,994 4,367,331,611 4,297,163,753 3,613,089,559 3,270,429,748 4,154,626,473 5,325,000,074 2,542,942,913 1,269,535,234 1,540,970,873 2,091,791,699 2,332,078,650 2,231,142,502 3,163,991,540 3,420,593,567 823,172,455 1,090,543,044 1,500,660,263 1,038,626,154 1,268,454,948 1,495,522,447 1,949,146,488 2,282,413,186 715,019,613 1,053,312,395 1,388,777,953 1,587,422,516 948,198,422 1,010,960,601 1,259,394,822 1,460,280,514 670,612,892 926,141,589 983,287,911 1,218,540,184 576,895,091 1,217,003,134 1,898,505,274 2,315,770,889 1,032,143,549 563,059,688 684,045,484 884,069,629 901,081,812,545 1,056,042,963,028 1,278,263,225,486 1,480,431,903,237

Source: U.S. Department of Commerce, International Trade Administration, http://tse.export.gov/TSE/TSEhome.aspx, accessed August 24, 2012

As documented in Table 1, there has been an impressive surge in U.S. exports since 2010. Specifically, for the latest full year available, 2011, U.S. exports experienced a growth rate of 16 percent, with West Virginia topping all other states with a 40 percent expansion rate. Impressively, 12 of the 15 states belonging to The Council of State Governments Southern Office, the Southern Legislative Conference (SLC) states recorded double-digit growth rates, with Louisiana and Mississippi both securing a 33 percent growth rate between 2010 and 2011. For the longer period, 2005 to 2011, 46 of the 50 states reached double-digit growth rates, with 10 of these states securing triple-digit growth rates. Once again, West Virginia, Louisiana and Mississippi were the three SLC states that had the highest expansion rate in the region for the period 2005 to 2011. Given that future export growth is going to be critical to take full advantage of the Panama Canal expansion, the forecast for 2012 appears to be promising. Specifically, if the U.S. export sector at a minimum maintains the numbers it reached in the first half of 2012, 36 states will see an increase in their 2012 exports over their 2011 exports; once again, the Southern states would fare very well and, of the 36 states expected to see an appreciation between 2011 and 2012, 14 belong to the SLC. Given the dominant role played by exports in fostering economic growth in the last few years, combined with President Obamas pledge in 2009 to focus on export-led growth and double U.S. exports by 2014, there is strong consensus that this segment of the economy will be a thriving one. Coinciding with the swirl of activity in Panama related to the expansion, there has been a frenzy of action in ports across the Gulf and East Coast of the United States. This activity stems from the fact that these ports are seeking to secure as much of the extra business, potentially billions of dollars, that is expected to flow to the East and Gulf Coast ports as a result of the expansion of the Canal and continued growth in world trade. Even though most experts immersed in the field are convinced that the massive explosion in trade will provide ample opportunities for a number of these ports to benefit tremendously, they equally are convinced that these ports need to make essential infrastructure enhancements to accommodate the larger vessels that will be wending their way to their docks. A number of factors account for the activity in these East and Gulf Coast ports. For instance, demographers forecast

that the U.S. population will increase by 32 percent, or almost 100 million people, over the coming 30 years, while per capita income is expected to surge by 170 percent during the same time period. Importantly, the regions expected to experience the highest population growth are the South and West, a development that will generate demand for enhanced trade in these regions. In fact, experts calculate that this drive for increased trade will result in imports expanding more than fourfold and exports expanding more than sevenfold by 2030. This growth in trade likely will heighten the need for the nations maritime assets and related multimodal transportation systems to be performing at peak capacity, a challenge complicated even further with the onerous infrastructure requirements to accommodate the larger vessels expected through the expanded Panama Canal. A corollary to this expected growth in global trade, including a renewed focus in the United States to promote our nations exports, is the Free Trade Agreement (FTA) between the United States and Panama that was signed into law in the United States on October 21, 2011. (For its part, Panama approved the agreement with the United States in July 2007). The presence of an agreement with Panama is an important boost to bilateral trade between Panama and the United States, since it often leads to an even further liberalization of trade in goods and services. In the context of the ongoing expansion of the Canal, the path for an even greater movement of cargo is considered a very likely scenario with the FTA. Another factor contributing to the extra activity at these ports is the competition among them to capture an everincreasing share of the traffic that will be coming through the Panama Canal. For a number of years now, there has been a great deal of analysis on the tremendous economic impact flowing from the nations ports. A study released by the Selig Center for Economic Growth at the University of Georgias Terry College of Business in May 2012 documented that Georgias deepwater ports supported 352,146 full- and part-time jobs across the state, some 8.3 percent of total state employment, or one out of 12 jobs. In addition, the study noted that the states deepwater port, the Port of Savannah, produces $66.9 billion in sales (9.5 percent of Georgias total sales); $32.4 billion in the state gross domestic product (7.8 percent of Georgias total GDP); $18.5 billion in income (5.2 percent of Georgias total personal income); and $4.5 billion, $1.4 billion and $1.1 billion in federal, state, and local tax revenues, respectively.

UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES 7

Figure 3 Possible Direct Route from Asia to East Coast through the Panama Canal

Source: A.P Moeller Mrsk Group, 2011 Service Schedule (as presented in http://www.iwr.usace.army.mil/docs/portswaterways/rpt/June_20_U.S._Port_ and_Inland_Waterways_Preparing_for_Post_Panamax_Vessels.pdf)

A report released by the South Carolina State Ports Authority in October 2011 noted that international trade through South Carolina ports facilitated 280,600 jobs across the state in the maritime, transportation, distribution and manufacturing industries while providing an overall economic impact of $45 billion each year. Another study released jointly by the Ports Association of Louisiana and the Louisiana Department of Transportation and Development in May 2012 documented that Louisianas port system is an enabler and serves as a launch pad for the states five major industries (oil and gas, transportation, warehousing, agriculture and manufacturing) as viable parts of the states economic base. This study documented that more than 396,000 Louisiana jobs are tied directly to a statewide maritime community spearheaded by the 30-plus deepwater and shallow-water ports spread across the state, resulting in $19.5 billion in personal earnings. Similarly, according to a study from the North Carolina State University Institute for Transportation Research and Education, North Carolinas ports support more than 65,000 jobs across the state, both directly and indirectly. In addition, wages from those jobs exceed the average annual wages in 91 of the states 100 counties. Similar trends are evident at the regions other ports; indisputably, a thriving port results in tremendous economic activity that generates a range of positive outcomes. There is sustained interest in the regions ports to capture

as much of the enhanced trade flowing through the Canal as a means to generate additional economic activity not only around the port, but across the state. Also important in accounting for the infrastructure enhancements at ports along the Gulf and East Coast is the strong speculation that the expansion of the Panama Canal will lead to these ports advancing at the expense of the West Coast ports.* A principal feature of trade statistics relating to U.S. ports in the last two decades has been the increasing dominance of a number of Southern ports. In anticipation of the expanded Panama Canal, this has become even more pronounced, with a number of East and Gulf Coast ports initiating an assortment of specific measures to wrest away a greater portion of the cargo (primarily from Asia) delivered to West Coast ports. The ports of Los Angeles and Long Beach have played an influential role in national cargo trends (some 40 percent of all container cargo traffic into the United States still arrives at these two ports) for decades now and, until quite recently, the strategy was to clear the goods off arriving vessels at these ports and then move the goods by truck and rail to their final destinations across the country. In recent years, there has been a transformation of
* For a more expansive description of this trend, see CanagaRetna, Sujit M. The Panama Canal Expansion and SLC State Ports, June 2010, pages 8-16.

8 UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES

this decades-long strategy, precipitated by several factors, including: labor unrest at the West Coast ports; the move by shipping companies and distributors to explore lower-cost alternatives; lack of land for expansion at West Coast ports; and rail capacity that is significantly lower at these ports. Consequently, there has been a drop in cargo volume arriving at West Coast ports. Based on these developments, the emerging consensus is that the expansion of the Panama Canal will facilitate further the movement away from West Coast ports, especially given the increasingly larger vessels that will be able to operate through the Canal and call at select East and Gulf Coast ports. Consequently, these ports have seized the opportunity to secure a greater proportion of the cargo volumes entering and departing the United States. Figure 3 provides a graphical representation of possible routes directly from Asia to the East Coast. A number of ports on the East and Gulf Coasts initiated efforts to compete aggressively against each other to secure a greater share of the increase in global trade related to the expansion of the Panama Canal. The efforts of some of these ports received a considerable boost in July 2012, when as part of its We Cant Wait initiative, the Obama administration announced that seven nationally and regionally significant infrastructure projects will be expedited to help modernize and expand five major ports in the United States, including the Port of Jacksonville, Port of Miami, Port of Savannah, Port of New York and New Jersey, and Port of Charleston. Importantly, four of these five ports are in the SLC. One of the critical preliminary steps in modernizing and expanding these SLC ports involves finalizing the federal feasibility studies that examine the costs and benefits of deepening their channel depths. While these federal feasibility studies take an average of 10 years, the expedited process announced by the Obama administration commits the federal government to finalize the study years ahead of previous projections. In the instances of the ports of Jacksonville, Miami, Charleston and New York and New Jersey, the expedited process will enable these ports to reach a channel depth of 50 feet well ahead of schedule, a critical factor in attracting traffic transiting the expanded Panama Canal. The descriptions following provide a glimpse into some of the SLC ports that are enhancing their infrastructure capacities in preparation for the Canals expansion: Port of Savannah:The Georgia Ports Authority, the entity overseeing the administration of the Port of Savannah and the other ports in the state, embarked on a

comprehensive effort to both expand and modernize every aspect of the Ports operations. A hallmark of this expansion effort is the Savannah Harbor Expansion Project, a collaboration between federal and other state agencies to deepen the Savannah River from 42 feet to 48 feet. This is a $652 million deepening project that brings total dedicated state dollars, including the funds passed by the General Assembly as part of Governor Nathan Deals fiscal year 2013 budget request, to $181.1 million. The Georgia Ports Authority documents that for every dollar the federal government spends on the project, the nation will see $5.5 dollars in benefits via lowered costs to bring goods to market. The Port of Savannahs record in recent years has been most impressive, accomplishing strong growth in breakbulk and auto cargoes alongside record volumes in total tonnage and container traffic. Port of Charleston:The South Carolina State Ports Authoritys major deepwater port is the Port of Charleston, another critical port on the East Coast. For the first six months of 2012, the Port of Charleston was the fastestgrowing top 10 container port in the United States with volumes expanding by 7.4 percent. In preparation for the Panama Canal expansion and expected routine flow of Post-Panamax vessels, the Port of Charleston has focused on its own harbor deepening project. In 2012, this effort was boosted significantly when the South Carolina General Assembly moved to fully fund the projects construction phase by setting aside the entire $300 million estimated cost. This allocation not only would cover the states 60 percent share, or $180 million, of the cost, but it also would fund the federal share of deepening Charleston Harbor to 50 feet or greater (from the current 45 feet), if needed. Port of New Orleans:Ever since it was founded in 1718, New Orleans has been a focal point for global trade. Consequently, the Port of New Orleans is one of the most significant in the nation, ranking in the top 10 for cargoes ranging from imported steel, natural rubber, plywood and coffee. In preparation for the Panama Canal expansion, the Port is ramping up expansion projects amounting to more than $400 million in new state-ofthe-art facilities, including improved breakbulk and container terminals, new multipurpose gantry cranes, expanded marshalling yards and a new roadway to handle truck traffic. Port of Virginia:The Virginia Ports Authority (VPA), which owns and operates the Port of Virginia, touts its ability to handle the required channel depth of 50 feet to

UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES 9

The MSC Roma, pictured on the top right, measures 1,105 feet long by 150 feet wide and is capable of carrying up to 9,200 TEU. Photo courtesy of the Port of Savannah.

55 feet and height clearance (approximately 50 feet) of the Post-Panamax vessel class that will be more routine after the Panama Canal expansion. The Virginia Ports Authority has been working assiduously for the past six years to prepare for the Canal expansion, including leasing the sizable APMT Intermodal Terminal at Portsmouth, expanding capacity at the Norfolk International Terminal and enhancing infrastructure capabilities at the Craney Island, a $2.2 billion multi-phase terminal project. At the APMT Intermodal Terminal, the Port operates eight Post-Panamax cranes, bringing to a total of 22 the container cranes that are Panamax-class and larger. The Ports multimodal capabilities, including the double-stack rail lines to Chicago, also remain a major attraction. Port of Brownsville:The only deepwater port directly on the U.S.-Mexico border, the Port of Brownsville is a critical linchpin in the movement of goods between the United States and Mexico and to other global locations. In anticipation of the extra shipping activity and added

cargo volumes after the Panama Canal expansion, the Port currently has invested $90 million in infrastructure projects, including multimodal options. Eddie Campirano, port director and CEO, notes that it is imperative that the Port of Brownsville moves toward deepening its channel depth from the current 42-foot draft to 50 feet. He notes that, Enlarging the channel isnt a luxury; rather, it is a necessity to take full advantage of growing cargo activity in the Gulf in coming years, not to mention the Ports prime geographical location on the doorstep of Latin America. Toward this goal, a $3.6 million feasibility study on widening and deepening is more than half-done. Port of Miami:The Port of Miami has focused intensely on preparing for the onset of Post-Panamax vessels in multiple ways. One of the ways is with its harbor deepening or dredging project. In August 2012, the Port of Miami and the U.S. Army Corps of Engineers signed the construction agreement permitting the Ports Deep Dredge project to go out for bid. The Deep Dredge seeks to

10 UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES

deepen the Ports existing 42-foot channels to between 50 feet and 52 feet in preparation for the Panama Canal expansion. It is expected that this deepening project will cost about $1 billion and completed around the same time that the Panama Canal expansion project is completed. Second, the Port is leading the way in constructing the PortMiami Tunnel, a public-private partnership between Miami Access Tunnel, Florida Department of Transportation, Miami-Dade County and the City of Miami in building two tunnel tubes under Biscayne Bay linking the Port of Miami with the mainland. Experts maintain that the tunnel is critical to the Ports future growth since it will enable port traffic to move seamlessly to and from the Interstate System while significantly reduce traffic in downtown Miami. The PortMiami Tunnel project is expected to cost $1 billion and, while construction on it began May 2010, it is expected to be completed by May 2014. The Port of Miami also is working on redeveloping 80 acres of cargo terminal area, a measure that will generate greater efficiencies in cargo terminal operations. Port of Wilmington:The North Carolina State Ports Authority (NCSPA) operates a number of facilities including the Port of Wilmington, along with the Port of Morehead City, plus inland terminals in Charlotte and in the Piedmont Triad at Greensboro. In January 2012, the NCSPA announced that it had renewed its strategic alliance with the Panama Canal Authority with the signing of an Memorandum of Understanding (MOU). This MOU reaffirmed both entities dedication to generating new business and promoting an all-water-route once the expansion of the Panama Canal is completed. As the chairman of the NCSPA Board of Directors noted, twothirds of the cargo handled at North Carolinas Ports transits through the Panama Canal and we look forward to the next five years of our renewed partnership, especially the eagerly anticipated completion of the Panama Canal expansion. Port of Houston:In March 2012, the Port of Houston announced the introduction of a new all-water service, connecting Asia and Houston via the Panama Canal. Vessels from COSCO Container Lines Americas will travel between Shanghai and Houston (transiting the Canal) in what has been termed the Gulf of Mexico Express (GME) service. GME becomes the first direct container liner service from China to call at the Port of Houston in nearly 10 years and is a strong indication of the thriving shipping activity forecasted between Asia and the Gulf Coast (via the Canal) in coming years. The Port of

Houston has a strategic plan in place to take advantage of its natural advantages along with enhancing its capacities by building first-class container facilities (at both the Bayport Terminal and the Barbours Cut Terminal); rejuvenating the Ports general cargo facilities and business practices while efficiently accommodating a diverse cargo portfolio; maintaining and improving the Port of Houstons ship channel (currently at 45 feet deep and 530 feet wide) and its tributaries to meet current and future navigation needs; leveraging the local and regional transportation systems and expanding the footprint of the Ports logistics links including roads, rail and barges; heightening the value and function of the Ports varied real estate assets; and optimizing the Ports financial position in response to marketplace and business demands. In conclusion, there is considerable optimism that the U.S. exports market will continue with its current growth trajectory and increase substantially in coming years once the economic situation in Europe and Asia stabilizes. As expected, U.S. global trade is expected to flourish in the coming years with the ongoing expansion of the Panama Canal, a critical link in the transportation of goods to and from the United States, playing a dominant role in promoting these trade linkages. The potential for additional cargo being ferried to East and Gulf Coast ports and away from West Coast ports has resulted in a flurry of activity in a number of SLC ports as they prepare for both the expansion in cargo volume and vessel size. Importantly, port officials and policymakers do not view the cargo expected to arrive at East and Gulf Coast ports as a zero-sum game and are confident that the increase in cargo volumes with the Panama Canal expansion will be substantial which, in turn, will provide incredible opportunities for a number of ports. Policymakers at every level of government realize the tremendous economic prospects, not only in the manufacturing of export items, but also in the activities of the ports and related multimodal transportation solutions. As a result, important infrastructure enhancements are underway in a number of SLC ports given the increased anticipation that an even greater portion of future U.S. exports and imports will transit through a Southern port. In fact, it is heartening to see policymakers at every level of government federal, state and local along with partners in the private sector working collaboratively to initiate the kind of infrastructure improvements at the regions ports to not only prepare for the onset of PostPanamax vessels that will surface with the completion of the Panama Canal, but also to enhance the economic potential of their individual cities, states and region.

UPDATE: THE PANAMA CANAL EXPANSION AND SLC STATES 11

Report References
CanagaRetna, Sujit M. The Panama Canal Expansion and SLC State Ports, June 2010. Reagan, Brad. The Panama Canals Ultimate Upgrade, Popular Mechanics, October 2009. The Canal Gets Bigger, and U.S. Ports are Ready, Business Facilities, April 1st, 2011. Panama Canals Growth Prompts U.S. Ports to Expand, The New York Times, August 20, 2012 Quijano Prepares for New Job as Panama Canal Authority Administrator, The Journal of Commerce, May 28, 2012. Charleston Harbor Deepening News, Channel Markers, South Carolina Ports, July 2012. We Cant Wait: Obama Administration Announces 5 Major Port Projects to Be Expedited, Office of the Press Secretary The White House, July 19, 2012. Expansion Program, Panama Canal Authority, http://www.pancanal.com (Accessed August 20, 2012). http://www.portofhouston.com/ http://www.portofbrownsville.com/ http://www.gaports.com/ http://www.port-of-charleston.com/ http://www.miamidade.gov/portofmiami/ http://www.portofvirginia.com/ http://www.portno.com/ http://www.ncports.com/ Alemn Zubieta, Alberto, administrator and CEO of the Panama Canal Authority, presentation at the Southern Governors Association Annual Meeting, August 10, 2012.

THE SOUTHERN OFFICE OF THE COUNCIL OF STATE GOVERNMENTS

government. As a national organization with a regional structure, CSG is uniquely positioned to provide a forum for dialogue and discovery among state policymakers and to promote the interests of states at the national level. The Council of State Governments was founded during the Great Depression and, for nearly 80 years, CSG has worked hard to provide state leaders with what they need to succeed in difficult times. The members of CSG include every elected and appointed state and territorial official in the United States. Through our committees and task forces, supported by our exceptional team of policy and research specialists, the SLC considers and makes recommendations on promising approaches to public policy. This report was prepared by Sujit M. CanagaRetna, senior fiscal analyst, for the Economic Development, Transportation and Cultural Affairs Committee of the Southern Legislative Conference of The Council of State Governments, under the chairmanship of Senator Bill Sample, Arkansas.

ounded in 1947, the Southern Legislative Conference (SLC) is the largest of four regional legislative groups operating under The Council of State Governments and comprises the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia and West Virginia. The mission of the Southern Office/Southern Legislative Conference is to foster and encourage intergovernmental cooperation among its 15-member states. In large measure this is achieved through the meetings, publications and policy positions of the Conferences six standing Committees. Committee members are appointed by their chambers legislative leadership and each committee elects its own officers. Through the deliberations of committee members, an array of issues facing all Southern state legislatures is considered. The Southern Legislative Conference is the Southern Office of The Council of State Governments (CSG), the only national organization serving all three branches of state

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