Calculating the Impact of The Panama Canal Expansion

Submitted by John Beasley…

It is counter intuitive to think the new expanded Panama Canal would be a game changer for U.S. port operations on the East Coast of the U.S.A., but that is how it is being sold. The increased “economies of scale” afforded by the Panama Canal expansion will allow about 1,900 ships to deliver the same number of containers through the canal that used to require about 4,200 ships to deliver. That is a great deal of savings in crew costs, bunkers fuel, and ship maintenance costs.

One plan is that these larger Chinese ships will transit the canal and leave the bulk of their U.S. bound container cargo at Freeport, Bahamas. Customers can then buy these Chinese products in the Bahamas and import the products into the U.S.A. “value added.” As such this delivery service is supposed to lower delivery costs substantially and breathe new life into the major shipping ports along the Gulf of Mexico and East Coast of the U.S.A.

If not for the “Jones Act” that protects U.S. shipbuilding, U.S. coastal shipping, and U.S. merchant marine jobs, the Chinese could dominate short sea shipping in the U.S.A. by having one ship service multiple ports. Interestingly, U.S. ports along the Gulf Coast and East Coast have signed agreements with the Panama Canal Authority to expand their ports to be compatible with the new Panamax ship standards. When does expanded capacity ever drive demand?

Mexico’s Baja Pacific Coastline is dotted with commercial seaports. There is a new mega-port being completed called “Punta Colonet.” About five to eight billion U.S. dollars has been invested in infrastructure over the past decade to make this one of the largest ports in Mexico. The idea is that “Punta Colonet” will draw off excess capacity from California ports, such as Long Beach. Buyers of products in Mexico can “value add” outside of the U.S.A., perhaps do some assembly in Mexico, and take their profits outside of the U.S.A. Currently the primary means to transfer containers from ports in Mexico to the U.S.A. is by rail.

Negotiating a trucking agreement between Mexico and the U.S.A. has been problematic. Mexican semi-truck drivers are paid about $3 dollars an hour while U.S. truck drivers make $15 to $21 dollars an hour. That is an eighty percent labor cost disparity which reflects the difference in the “cost of living” between the two countries. There are about 1.4 million semi-trucks on the U.S. highways, so that is about seventy billion just in labor costs. So far, the U.S. trucking industry has managed to hold off Mexican truckers being allowed to deliver loads into the U.S.A.

A trucking agreement would likely destroy the livelihood of U.S. truck drivers, much like what is happening in the U.S. construction industry. A loss of the trucking industry could impact the U.S. truck manufacturing industry and the U.S. shipping and logistics industry. Long term this would likely impact the road tax collections by the government, which could impact the funding for construction and maintenance of highways in the U.S.A. All of these industries are big business profit centers for the U.S. economy.

These trucking and rail shipping issues have held back Mexican ports from realizing their potential contribution to the U.S. market. Once these shipping issues are resolved Mexican ports combined with Mexican trucking could deliver containers to the U.S. market at substantial savings even without using the Panama Canal.

Done correctly this transition will redefine the market place and provide a lower cost of doing business in the U.S.A. Done incorrectly, moving the shipping industry out of the U.S.A. and into Mexico could start a cascade of economic failures that would be difficult to correct.

A question that comes to mind, is what is the primary benefit of the expanded Panama Canal? My guess is that it is to load Suez-Max size fuel tankers from offshore single point fueling moorings in the Gulf of Mexico and export that oil out to Asia.

Team U.S.A. has a very impressive business package that they offer in Asia and elsewhere around the world. They provide finance in U.S. dollars to build infrastructure and business expansion. They provide fuel oil that can be purchased in U.S. dollars to run the Asian economy. They provide an experienced design build construction industry that accepts U.S. dollars for building infrastructure that includes access to high quality construction materials. The icing on the cake, Team U.S.A. provides guaranteed access to the worlds largest consumer market for all the products these Asian countries are able to produce. Finally, if that were not enough, Team U.S.A. offers an umbrella of military protection. By some accounts Team U.S.A. has diverted twenty-one trillion dollars toward maintaining its presence in the Asian market. It will be interesting to see how this all plays out.