Why Virginia ♥ Panama

by James A. Bacon

West Coast ports import 70% of the Asian trade, and half of that cargo moves to the Midwest and East Coast by means of trains. In effect, that means 35% of the  Asian trade will be up for grabs by Hampton Roads and competing ports, when the Panama Canal opens up to larger ships and doubles its capacity in 2015.

That’s a lot of business but there will be a lot of competition for it, as Sara E. Russell, a professor of maritime and supply-chain management at Old Dominion University, makes clear in the latest edition of The Virginia News Letter. Not only are ports along the U.S. East Coast and Gulf Coast gearing up to capture a piece of the action so are ports in the Caribbean, which are positioning themselves as logistical load centers where cargo can be redistributed by smaller feeder ships.

Russell is optimistic that Virginia port, which has the advantage of the East Coast’s deepest channels and some of its best rail connections, has a major growth opportunity. But Virginia can’t take anything for granted, as many other states are moving aggressively to capture business, too. “The Virginia Port, in partnership with the state’s economic development groups,” she writes, “must proactively work to attract the shippers.”

The fantasy scenario for Virginia is for Hampton Roads to become a load center, acting as a hub for Asian-bound exports and the redistribution of cargo from the deep-draft ships to shallow-draft ports and inland facilities. Russell says that the “more realistic” scenario is that several key ports with well-developed infrastructure will receive smaller portions of the increased tonnage. To guard against disruptions from everything from labor disputes to hurricanes, it makes sense for shippers to cover their bets by pursuing dual East Coast/West Coast shipping strategies. Even so, she says, the opportunities are large. She concludes:

It is realistic to assume that because the magnificent deep water Port of Virginia can clearly handle significant cargo volume increases, the impact of the Panama Canal expansion on the state could mean considerable economic growth through shipping manufacturing, distribution, and infrastructure development with corollary job creation. As a result of far-sighted infrastructure projects in place and under way both seaside and landside in Virginia, the state is poised and prepared for higher volumes of cargo when the larger vessels begin moving through the Panama Canal in 2015.

Bacon’s bottom line:

Russell provides a solid overview of the economic issues surrounding the Panama Canal expansion but she avoids addressing the tough public policy issues. For example, she does not discuss the state’s billion-dollar public investment in U.S. 460, which the McDonnell administration justifies by the expectation of increased volume of cargo from Panama Canal expansion. How much of the cargo will move by truck, as opposed to railroad? Is it realistic to expect a new industrial development corridor to emerge? How dependent will new economic activity be upon a host of special tax breaks enacted in recent years by the General Assembly? She doesn’t answer those questions. She doesn’t have much to say about the pros and cons of port privatization either, nor does she even tell us how economic developers ought to be collaborating with the port.

In sum, Russell makes a strong case that the Panama Canal expansion represents an opportunity worth pursuing but she doesn’t offer much guidance on how.

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5 responses to “Why Virginia ♥ Panama”

  1. I do not blame the folks in the Va Port Authority for beating their own drums but I would blame anyone who see’s their view as legitimate without getting an independent and more objective perspective.

    Here’s my problem. It’s pretty simple minded.

    Why did the majority of ships from Asia and points west of LA go to the LA port rather than other ports in the Gulf or East Coast before Panamax?

    or to turn this around – what was it – prior to Panamax that would cause ships to skip LA and go through the canal to the Gulf and East Coast?

    The premise seems to be that more ships would have gone through the canal prior to Panamax if the ships were bigger, held more cargo.

    I’m not convinced of that but I would also say that the calculations that go into such a decision – are not ones that you are going to hear from the operator/advocates of any given particular point either.

    For instance, if the premise is true then what is the estimate percent of ships who will now skip LA and go through the canal?

    I seriously doubt that it’s 100%, 50% or probably even 25% but pick a percent.

    There are a dozen or two dozen existing ports in the Gulf from Corpus Christi to Tampa.

    So the next question is – why would a Panamax ship NOT go to one of these Gulf Ports BEFORE it decided to go all the way around Florida and up the East Coast?

    I think that question needs an answer before I would believe that Hampton Roads is in any position to take a much higher percentage of shipping than it already has – if several of the Gulf ports can also handle Panamax ships.

    I just think you’re not going to get an honest injun answer about this from the folks who run the port nor their supports in Govt and business and taxpayers need to know that info if taxpayer money is going to get into that game.

  2. DJRippert Avatar

    “Why did the majority of ships from Asia and points west of LA go to the LA port rather than other ports in the Gulf or East Coast before Panamax?”.

    I guess there have long been very big ships that are too big to fit through the present Panama Canal. Shippers like these behemoths so they leave Asia, avoid the canal, dock on the US West Coast, unload and use overland transportation to reach the Mid-West and Eastern US.

    Once the canal is widened, things will be different.

    The gigantic ships with goods headed to the Mid West and Eastern US may go through the canal and unload closer to the final destination of the goods they are shipping.

    At least, that’s my understanding.

  3. Isn’t it all economics? If it’s less expensive to ship goods from the Far East to the East Coast through a widened Panama Canal than it is to ship to LA and then use land transport to cross the country, we’ll see shipments direct to the East Coast. If not, we won’t.

    Do East Coast ports have better labor relations than West Coast ports? I would think this would be a factor considered as well.

    1. DJRippert Avatar

      True, although not all the costs are in actually shipping the goods. The Ports of Los Angeles have a massive technologically – advanced infrastructure to get cargo off the ships and onto an extensive rail system.

      Virginia has deep channels. Does it have the unloading technology and rail infrastructure to get the goods from the port to the ultimate destination?

      1. Supposedly, Virginia has the largest cranes in the world. But there’s more than big cranes to conducting an efficient trans-loading operation. The configuration of the container-stacking yard is important, too.

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