As states seek funds for deeper ports, will ships come in?

McClatchy NewspapersMay 2, 2012 

— A wider, deeper Panama Canal will open in 2014, meaning that bigger cargo ships filled with more containers of consumer goods can move directly to the population centers of the East Coast instead of stopping on the West Coast and sending the goods across the country.

States with seaports along the Atlantic are asking for hundreds of millions of federal dollars to deepen their harbors and shipping channels to accommodate the bigger ships and capture a slice of the growing traffic.

But some global supply-chain experts say the optimistic pre-recession projections of a huge shift in cargo from West Coast ports to East Coast ports no longer add up. Even the U.S. Army Corps of Engineers, which conducts feasibility studies for such projects and often does the dredging, expects little change in cargo volume at those ports.

John Lanigan, the chief marketing officer for freight rail hauler Burlington Northern Santa Fe, which runs dozens of double-stacked container trains every day from West Coast ports to the Midwest and Southeast, said he didn’t expect a major diversion of cargo to the canal.

“The opening of the canal is not going to make it any faster for freight to get to the East Coast,” he said. “The only thing that really changes is that bigger ships will be able to go through the canal.”

Even so, Republican governors in South Carolina, Georgia and Florida, who were elected on platforms of fiscal conservatism, are still hoping that the federal government will pay for some of the cost of the harbor-deepening projects. But just in case the federal funding doesn’t come through, these states have a backup plan: Spend state taxpayers’ money.

Currently the biggest ships that can fit through the Panama Canal can carry only about 4,000 containers, metal boxes full of consumer goods that can be transferred from ship to train to truck. The new, so-called post-Panamax ships will carry double or triple that volume. But because the ships are bigger and heavier, they also require water depths approaching 50 feet.

The ports of Norfolk, Va., Baltimore, and New York and New Jersey have that depth now or will soon. Farther south, the ports in Charleston, S.C., Savannah, Ga., and Miami don’t want to see the bigger ships pass them by.

“I don’t know too many ports that have gambled on shallow water that have stayed in the game,” said Kevin Lynskey, the assistant director for seaport business initiatives at the Port of Miami. “If we didn’t dredge and other people did, we certainly would lose more containers.”

Proponents of harbor-deepening projects say they’re vital for local and state economies and will create thousands of jobs in a country that’s still reeling from the deepest economic downturn since the Great Depression.

“It’s the biggest strategic issue for South Carolina today,” said Jim Newsome, the chief executive of the South Carolina Ports Authority, which needs $300 million to deepen the 45-foot harbor in Charleston to 50 feet by 2020. “Businesses locate near ports; that’s the bottom line.”

But Jean-Paul Rodrigue, a transportation scholar at Hofstra University, said it didn’t make sense for Charleston, Savannah and Miami all to have deeper harbors without more business.

“You need a lot of volume,” he said. “It’s not certain those ports can generate that level of volume.”

Several factors make a significant shift from one coast to the other unlikely. The first is speed. It’s less expensive for a ship to go the all-water route to the East Coast instead of docking on the West Coast and offloading containers onto trucks or trains, but it also takes at least a week longer. For consumer electronics and other high-end goods that need to get to store shelves quickly, retailers will pay more for faster transit times.

Second, ports in Los Angeles, Long Beach and Oakland, Calif., and Seattle and Tacoma, Wash., are deep enough to handle the bigger ships. They have warehousing space for containers, and they have highly developed rail connections to the Midwest and Southeast.

“Why not just unload all of it here?” asked Art Wong, a spokesman for the Port of Long Beach, which is second only in volume to Los Angeles in the U.S. “We hope to maintain those kinds of advantages.”

Third, the Panama Canal authority must pay off billions of dollars in construction costs, and it’s unknown how much the canal will charge the bigger ships in tolls. Last, the Suez Canal can handle any size ship, and some cargo ships bound from Asia to North America already use it.

“Depending on what Panama Canal charges in fees, it still makes economic sense to hit LA-Long Beach and be in Kansas City, Chicago or Louisville pretty darn quick,” said Charles Clowdis, the managing director of North American markets at economic forecaster IHS Global Insight.

Rodrigue said the Atlantic states were using the canal as a rationale for their own port expansion plans.

“If I was a port authority, I would be doing the same thing,” he said. “They want to do what they perceive is best for their own ports.”

Newsome is banking on Charleston’s strategic position in a growing Southeast market, and he says the port could feed the region’s bigger population centers such as Charlotte, N.C., and Atlanta.

“We think we’re the only harbor in the Southeast where it makes sense to go 50 feet or deeper,” he said.

South Carolina Republican Gov. Nikki Haley has lobbied President Barack Obama for $120 million for the Charleston harbor but received only enough to complete a study of the project. The state Legislature is considering a bond issue to pay for the federal portion in case the funds don’t come through.

“Gov. Haley has been working on securing funds to dredge Charleston since she was elected governor,” said Rob Godfrey, a spokesman, “and she is confident we will get our federal match and that Charleston will be as deep as necessary to make it the best port in the Southeast."

Georgia also isn’t waiting. Republican Gov. Nathan Deal’s budget now includes about $180 million in state funds for the port of Savannah. He said the state would pay for all of it if necessary, then seek a reimbursement from Washington.

Savannah is 100 miles south of Charleston and boasts the busier of the two ports, but it also has a shallower channel depth of 42 feet. Dredging the Savannah River would cost more than twice as much as Charleston, and would give the port only a 47-foot depth, though the river’s high tides would help accommodate bigger ships, as they do now.

“If you compare the cost of the two projects, they have a lot more to fund,” Newsome said.

Much of the $650 million cost is environmental mitigation. Billy Birdwell, a spokesman for the Army Corps of Engineers Savannah District, said that included the impact on marshes and a wildlife refuge and protecting endangered sturgeon. History also gets in the way: A sunken Confederate vessel that’s in the channel would have to be removed.

An Army Corps of Engineers study, released in January, concluded that the cost of deepening the channel to the port in Savannah is justified in part because it would generate $174 million in annual economic benefits. However, the report also said that no changes in cargo volume were expected as a result of the deeper channel.

Birdwell said economic benefits would come from the efficiencies of the larger ships. Larger ships mean fewer ships, and less congestion getting in and out of the port.

Stephanie Mayfield, a spokeswoman for Deal, said Georgia supported the expansion of both Savannah and Charleston.

“Both ports are of regional and national significance, and there is plenty of business to go around,” she said. “Gov. Deal is committed to funding the state’s share of 40 percent and expects that the federal government will live up to their commitment and fund the remaining.”

Florida Republican Gov. Rick Scott didn’t wait for an answer from Washington on the state’s request for $77 million for the Port of Miami. Just two months after he took office, Scott decided that the state would pick up the tab.

“We chose to self-fund,” said Lynskey, the assistant director at the Miami port. “We do want to get reimbursed by the federal government, but we’re going ahead without knowing.”

On Florida’s west coast, Port Manatee is nearing the end of a decade-long, $200 million expansion and has dredged to accommodate ships that have passed through the Panama Canal.

Miami’s project is less expensive than Savannah’s or Charleston’s, and it might be complete by the end of 2014, Lynskey said. A rail link to the port was rebuilt recently, and a $1 billion road tunnel to reach the harbor will be finished soon. Last month, the port authority reached a deal with environmental groups that had opposed the dredging project out of concern for its impact on coral reefs. Lynskey said the construction bid for the project should be ready by August.

Lynskey said that 60 percent of Florida-bound consumer goods from Asia didn’t come through the state’s ports, instead reaching Florida through Southern California or Savannah. With the deeper port, Lynskey expects Miami cargo volumes to double in the next decade.

“If we get no more than recapturing Florida, we’re going to get our investment back,” he said.

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