This is an essay about a transport investment expected to have world-wide and long-lasting implications. I have never seen the Panama Canal, but its fascination for me began with an old-fashioned book in my father’s library, called The Story of the Panama Canal, or similar, and dating to the period of the Canal’s construction almost a century ago. Then David McCullough’s magnificent Path Between the Seas (1977) told us all so much more than we had known before. In the Cold War era there were proposals within the “Atoms for Peace” program to use nuclear devices to blast a new sea-level canal; that fantasy, fortunately, had “no legs” – to mix the metaphor something awful. Later, President Carter’s farsighted – but at the time widely maligned – proposal to return control of the Canal Zone to the Panamanian Government was enacted by Congress, and implemented on schedule in 1999. Shortly thereafter the Panama Canal Authority was established and plans to widen the original facility were made. Congestion in transiting the canal had become an issue of considerable concern to commercial users, and what is more, the Canal’s original gravity system for raising and lowering vessels through its locks using fresh water from Lake Gatun, was no longer environmentally sustainable for the long run.
Now the Canal is being widened to handle ships with more than two and a half times the container carrying capacity of today’s Panamax vessels (those that can just squeeze through the current locks) (See Figure 1). The Authority wisely chose a strategy to widen and deepen the canal, but re-cycle much of the lock water rather than wastefully letting it all flow out to sea. Disbelievers in the economics of the widening project (including at one time this writer) have slowly melted away; there may be delays in construction, but completion is assured and the targeted opening date is delayed only one year, to 2015. What are the implications for North American container ports and their connecting double stack railways? That is the subject of this essay.
World-wide shipping economics and operations changed quite dramatically in the post-World War II period, to make the Canal widening project not only feasible but commercially warranted. Perhaps most important was the innovation by trucking and shipping entrepreneur Malcolm McLean of the marine container, which revolutionized ocean shipping. McLean demonstrated his idea by outfitting one of his ships, the Ideal X, to carry highway trailers on an open deck. The initial voyage was from Newark to Houston, carrying 56 trailers. Before long the manifest savings in ship loading labor, wharfage space, pilferage, and damage to goods warranted expansion of the network to include a fleet of specialized ships and their containers – boxes sans wheels. Among other benefits, containerization meant ships carrying mixed manufactures could be much larger, because they were unloaded faster and the containers could be stacked several high and/or quickly moved away from the wharf on chassis.
Next came the idea, implemented first by Southern Pacific Railroad and SeaLand, of stacking containers two-high on railroad flatcars. Aside from the obvious savings in train length and flat car platforms, the double-stack (DST) configuration had superior wind resistance properties compared with the alternative, truck trailers on flat cars (TOFC). Affixing the top container to the lower unit or platform of the flatcar took a bit of ingenuity, but it turned out that the standard method used onboard the new generation of containerships, an interbox connector (IBC) with proper end-post fittings on the container itself would suffice. Once double-stack train economics became available, containership operators saw the opportunity to provide direct service from Asian ports to US West Coast docks for rail intermodal shipment inland or even transcontinentally.
These services would not have been economically feasible without a corresponding innovation, long term confidential contracts between maritime carrier customers and their partner railroads; these long-term contracts were only newly legalized by the Staggers Rail Act of 1980. The international containership operators soon acquired fleets of “Post-Panamax” vessels – unable to transit the Canal – and thus dependent on the success of double-stack trains. As with all market economics, however, there is no “free lunch” -- nothing fixed about trade-offs among competitive alternatives. The very success of the Asian – American containership liner trade with Post-Panamax vessels carried with it the seeds of renewed interest in widening the Canal.
The recent sharp drop-off in international intermodal loadings from West Coast ports during the Great Recession, almost one-fourth of the traffic, caused some ports to request that their railroad connections re-examine rate structures in order to hold the line against diversions to Panama Canal routings. But as pointed out by veteran intermodal marketing executive and commentator Theodore Prince, the railway rates are market-based. Prince goes on to note that we are seeing only the initial salvo in port – railway pricing controversies related to mini-landbridge vs. Panama Canal routings with completion of the new Panama locks. Industry leaders disagree on the extent of diversions, he says, some believing markets as far inland as Chicago, St. Louis, and Dallas will be reached westbound from the Atlantic, while others expect West Coast ports not to lose share to Canal routings if inland penetration would require “reverse” rail flows exceeding 200 miles.
Round-the-World (RTW) and North American "True Landbridge" Options
Before moving to a discussion of implications of the New Panama Canal for North American ports and double-stack services, a few comments on RTW and Landbridge services seem appropriate, as they will also be affected by widening of the Canal.
Malcolm McLean’s round-the-world (RTW) services were based on the then-Panamax EconoShip of a special design maximizing container capacity at the expense of fuel economy. "Panamax" meant vessels that were just barely able to squeeze through the Canal; they were boxy – not sculpted for fuel efficiency. (Now we need a new word for vessels barely able to transit the widened and deepened Canal -- I'm suggesting "New Generation Panamax" so as not to be confused with earlier use of the term "Post-Panamax."
Later developments in round-the-world shipping, particularly by Evergreen, showed that McLean had chosen the wrong direction for transiting the Panama and Suez Canals. McLean had dispatched RTW EconoShips eastbound through Panama and Suez. Halifax, for example, worked better in the eastbound direction, so that Asian goods would come to Canada via Halifax and then go on across the Atlantic to Rotterdam. Inspection of the map (Figure 3) shows, however, that the Suez route is considerably shorter for traffic from Singapore to Rotterdam via Suez, and competitive even if the origin moves to Japan, (or if trans-circumnavigation of Africa via the Cape of Good Hope were necessary because of trouble at Suez).
North American Landbridge
Extension of North American mini-landbridge services to serve the true landbridge route between Asia and Europe has never reached maturity. Originally advanced when the Middle East conflict (Yom Kippur War) closed the Suez Canal in 1973, the logistics advantages of the true landbridge could save perhaps two sailing days from Tokyo to Rotterdam by taking advantage of fast DST service across the USA or Canada and avoiding congestion delays at Panama or Suez on the long trip around Africa.
Widening and deepening of the Panama Canal probably would end any further consideration of North American true landbridge service. While the two or so day savings from the DST land transit would still be available, congestion at Panama (and any possible related overflow back-up at Suez from liner traffic using that route to avoid Panama would no longer be relevant considerations. Also, improvements to routes inland from U.S. ports are not likely to benefit from landbridge services, because diversion from West to East mini-landbridge would draw investment dollars away from that route and toward South to North flows over Gulf Ports and East to West flows from the Atlantic ports to the American Midwest. One possible benefit for true landbridge could come from port improvement at, say, Savannah, Charleston, or Hampton Roads and use of other DST lanes improved for other purposes; as noted above, these include the Sunset Corridor to El Paso, the T&P route from El Paso to Dallas-Ft. Worth, UP routes to Memphis or Shreveport, the Meridian Speedway, and NS corridor improvements to the Crescent and Heartland corridors.
Finally, there is the issue of Suez routings to the East Coast. It was the case only a few years ago that Singapore was the rough breaking point between traffic flowing east (Panama or mini-landbridge) or west (Suez) to New York. Now that “watershed” point appears to have moved west to India or even further, some say.
Implications of Widening the Panama Canal for North American Ports and Double-stack Operations: Will the Containers Move East from the Pacific, North from the Gulf, or West from the Atlantic?
The discussion that follows provides a qualitative assessment of changes in double-stack flows likely to come about as a result of the completed widening of the Panama Canal. The largest ports and their railroad connections will be affected most; the Top Ten U.S ports are show in Figure 4 below. To these we have added a few other U.S. ports, several Canadian ports, and a brief discussion of impacts on Mexico locations.
American port cities along the Gulf of Mexico and Atlantic Ocean – from Houston to the port of New York/New Jersey – anticipate large increases in their handling of mixed freight – miscellaneous merchandise and manufactured goods arriving by containership. Implications for bulk cargoes carriers and military vessels are not expected to be as significant.
There are two implications of the canal-widening for handling of international containers drawing the greatest amount of discussion. One is, which American ports will be winners and which losers? The second is, what changes will occur inland in flows of containers divested from existing lanes to new Panama Canal routings.
The first of these two discussions is mainly about which Gulf and Atlantic Ports will be able to expand fastest and most economically to handle the anticipated growth? The second issue then relates to the fallout: How far inland will container flows penetrate by double-stack container trains from the Gulf and Atlantic ports? What will be the impact on existing and forecast mini-landbridge double-stack movements from West Coast ports to mid-continent gateways and on to mega-consumption regions in the East and Southeast? Will massive development of facilities to serve these flows (West Coast ports themselves – Los Angeles, Long Beach, Seattle/Tacoma, Oakland, etc.) transcontinental rail lines (BNSF, UP, NS, CSX); and Mississippi gateway inland ports (Chicago, St. Louis, Memphis)? Will these existing investments prove to have been premature? (Unlikely.) Will the new Panama Canal route competition turn out to be exaggerated? (Somewhat, but not entirely.) Or, perhaps a third outcome – some combination of these influences – will result.
Our conclusion is that the third outcome is most likely. Gulf and Atlantic port growth will be huge, but not all of it at the expense of Pacific ports. This view anticipates the effect that growth of Pacific ports and mini-landbridge container traffic is just slowed, not put into a tailspin – and that could turn into a good thing. A collateral development associated with this third line of reasoning is that some land-side resources that have been devoted to creating capacity for handling international container movements over Pacific Ports and mini-landbridge gateways will be “redeployed” to servicing the continuing strong growth of domestic container operations. BNSF’s completion of its multi-year double-tracking and de-bottlenecking of the former Santa Fe's Transcon” line, Union Pacific’s large investment in double-tracking the sunset corridor from El Paso west to Colton, California. Norfolk Southern’s Crescent Corridor improvement from Harrisburg to Memphis, Kansas City Southern’s “Meridian Speedway,” Chicago area intermodal improvements at the Joliet Arsenal site (BNSF and UP) and at Rochelle, Illinois (UP). The Los Angeles area’s Alameda Corridor East plans – all of these may continue to be built out perhaps at a slower pace – but with acknowledgment that their purpose in life is more to serve domestic containerization than their original raison d’être – international double-stack containerization.
To return to the topic that launched these thousand ships of thoughts, what can be said at this point about impacts on Gulf and Atlantic Ports from Panama Canal widening? Let's go down the list, counter-clockwise, port by port, arbitrarily starting at Houston.
Among America’s largest ports based on bulk traffic (crude oil and petroleum products), the Port of Houston stands to be a winner in the new post-Panamax stakes. Houston is on the shortest distance path from the Panama Canal’s Caribbean/Gulf/Atlantic outlet to the American Midwest. As shown on the accompanying map (Figure 4), Houston’s “rail shed” would encompass Chicago, St. Louis, Kansas City, and all of Oklahoma and Texas.
Depending on port expansion on the Gulf Coast of Mexico, Houston might also participate in Mexico traffic. Coatzacoalcos, Veracruz, and Tampico are better positioned for this traffic, but a port must achieve “minimum optimal scale in order to attract sailings; Veracruz is most likely to continue to be the “load center” for this traffic. These frequencies are critical to average transit times and inland double-stack economies. For traffic arriving from the Panama Canal – the Port of Houston could penetrate Texas markets north to Dallas and west to San Antonio, where it could then mix with NAFTA rail traffic to/from Laredo and Mexico over Union Pacific and Kansas City Southern de Mexico routes to Monterey. Mexico City is more likely to be served from the Pacific port of Lazlo Cardenas by KCS de Mexico.
New Orleans/Gulfport-Biloxi/Mobile (NO, G-B, M)
The Port of New Orleans made a heroic recovery from the devastation of Hurricane Katrina. Gulfport and Biloxi also suffered damage. These ports are well-positioned to serve cross-Gulf traffic to Mexico, but they lack the hinterland and local population/industrial base to become major points on the Panama Canal/inland double-stack network. Experience with a quarter century of international container export/import double-stack inland service has shown the criticality of near-port consumption areas to sustaining the international intermodal model. This is the reason Los Angeles/Long Beach always leads the way as an anchor for DST – in contrast to, say, Oakland, Portland, or Seattle Tacoma – despite shorter sea-lane distance to the Orient.
Norfolk Southern appears to be anchoring its “Crescent Corridor intermodal improvements on terminals at Memphis and Birmingham, rather than New Orleans or Shreveport. These improved terminals could be fed from the Panama Canal traffic moving over South-Central Gulf ports (NO, G-B, M), but again intermodal DST economics put a premium on densities and frequencies. It may take a number of years to sort out the most viable route for Gulf to inland traffic in the South Central region. The best routes likely would be: 1) New Orleans-Jackson Memphis via Canadian National with an interline connection to the Meridian Speedway (KCS – NS) route at Jackson; 2) Mobile – Birmingham via CSX, NS, or BNSF; and 3) A connection to Atlanta over Birmingham (NS).
The port of Savannah is growing rapidly and will be a major contender for Asian traffic moving in New Panamax containerships. The draw for Savannah is its excellent connections via both CSX and NS to Atlanta. Savannah will have wide deep-water channels, simple portside storage capacity, and low operating costs compared with its rivals. Really, Savannah’s only downsides for handling the new traffic flows is its distance inland up-river from the Atlantic and the rail distance on to the American Midwest; this traffic would have to go back to Atlanta, then north to Cincinnati or Louisville en route to Detroit, Chicago, St. Louis, or Kansas City.
The venerable Port of Charleston should be able to participate significantly in New Panama traffic growth. Charleston’s costs are reasonable low, and expansion potential is good. Inland connections for DST service on NS to Atlanta, Birmingham, the Meridian Speedway, and Memphis. Northbound, containers imported over Charleston can use CSX DST service paralleling I-95.
The Port of Wilmington, North Carolina anticipates substantial growth in the wake of Panama Canal widening. The state of North Carolina is an active booster of rail service, and plans substantial upgrades along the CSX route from Wilmington to Charlotte, which should make Wilmington competitive for new DST services inland. Also, land has been purchased near the Military Ocean Terminal at Sunny Point, NC, where a new deep-water port is planned, with ample room for future expansion – supplementing Wilmington.
The Virginia Port Authority has been expanding facilities in both Norfolk (exclusively NS-served except for Maersk's relatively new Virginia International Terminal in Portsmouth (served by CSX as well as NS) and Newport News (served by CSX). Well-known for coal exports and U.S. Navy operations, these Virginia ports can expect huge growth in containership volumes when the Panama Canal widening is complete. Hampton Roads offers natural deep water channels and relatively low operating costs. CSX will use Newport News docks to access inland DST service via Richmond and its developing National Gateway. NS will use its traditional export coal route to move DST trains west to Petersburg and beyond via its Heartland Corridor. At Lynchburg, the Heartland Corridor intersects the Crescent Corridor, so traffic coming over the Port of Norfolk can move southwest to Charlotte, Atlanta, Birmingham, Meridian, and Memphis, or northeast to Front Royal, VA, Harrisburg, and Northern New Jersey and New England (via the Patriot Corridor).
The Port of Baltimore is a substantial distance up the Chesapeake Bay from Hampton Roads, which is a disadvantage for ship turnaround times, but an advantage in moving loads inland. CSX would be able to use DST west and north of Baltimore, but only if large sums are invested in tunnel and bridge clearances. The CSX National Gateway project will tap Midwestern markets via a new container facility near Toledo, and will make Baltimore’s port more competitive.
These ports can be reached by containership coming up the Delaware Bay and River. Dredging the Bay for deeper draft ships has become controversial, and major investment at these ports is unlikely. Philadelphia does a reasonably large business with Caribbean traffic and Wilmington is a bustling banana port. The Delaware Bay ports are significant in handling crude oil imports, but it is unlikely that this container traffic will increase substantially because of Panama Canal widening – in part because they are not well placed for inland DST service extensions.
Port of New York/New Jersey (PANY/NJ)
Next to Houston, Savannah, and Norfolk, the PANY/NJ is likely to be the biggest beneficiary of larger New Panamax containership traffic. The container handling facilities of Kearney, NJ are already enormous. With new container flows inbound, these yards may become more balanced as to direction of flows and thus more efficient in utilization of DST platforms and locomotives. The mega population surrounding New York City provides markets for inbound container traffic of all kinds, whether consumer manufactured goods from Asia or foodstuffs from the American Midwest. International and domestic containers can meet in Northern New Jersey for transloading or re-stuffing – filling slots on container trains moving west or the holds of containerships leaving PANY/NJ for worldwide destinations.
The Port Authority has been developing options for getting New Generation Panamax ships under the Bayonne Bridge and into Port Newark / Port Elizabeth. The current plan calls for two expensive projects, raising the bridge and deepening the channel under it. An alternative would kill two birds with one stone -- move the port facilities served by larger new ships east from Elizabeth and Newark to Bayonne on the Hudson River, where the Appalachian Chain falls off sharply into deep water. (The site is the former Bayonne Military Ocean Terminal.) Building a new super terminal there would put it east of the Bayonne Bridge and would avoid blasting a deeper channel through Appalachian schist, but it would mean costly extension of improved rail access facilities to Bayonne. Existing rail and port facilities in Kearny, Elizabeth and Newark would continue to serve Panamax ships in the feeder trade.
It is unlikely that the widening of the Panama Canal will have significant impacts on the Port of Boston. Its international business will continue to be oriented to Europe and the Mediterranean,
The Canadian Port of Halifax has marvelous natural deep water channels. It could benefit from larger Asia vessels coming through the Panama Canal and dropping container loads destined by DST for Montreal, Toronto, and Michigan. Alternatively, at Halifax, containers could be transferred to smaller ships using the St. Lawrence Seaway to Great Lakes ports. Halifax already serves as a major “load center” for trans-Atlantic container service, and stands to expand its role in the new post-Panamax era.
North American Pacific Coast Ports – Impact of Panama Canal Expansion
The Ports of Los Angeles and Long Beach (LA/LB) are the largest in North America in terms of handling containers. The explosive growth of trade between the USA and Asia has centered on the twin parts of LA/LB and, similarly, this port complex has become the largest load center for double-stack container trains operated by BNSF and Union Pacific railroads. New facilities have been developed in and near the port complex to accommodate the growth. In addition to private investments or contractual agreements to build and lease space for containership lines like American President, NYK, SeaLand, and Maersk, public-private partnerships have been used to create such infrastructure projects as the International Terminal Services (ITS) and the Alameda Corridor project – a double-track rail trench between ITS and downtown L.A. There has been much discussion also of an Alameda East project – essentially continuing the Port corridor from its current end near downtown Los Angeles eastward to Riverside/San Bernardino, over routes of both BNSF and UP.
The great advantages of the Ports of LA/LB are two – proximity to a huge commercial/economic region and space to grow. The size of the Los Angeles Metropolitan area and its economy cannot be ignored by distribution and carriers located anywhere in the world. It is a magnet for goods from anywhere. DST trains bring domestic goods from all over the USA for consumption by southern Californians, and for export. Containerships unloading at the Ports of LA/LB leave containers for local consumption as well as to fill double-stack trains returning east. There is also a substantial local business in transferring (re-stuffing) goods inbound from overseas in international containers into larger domestic containers or 53’ over-the-road truck trailers.
This port on San Francisco Bay ranks sixth or seventh among USA container ports in volume. It handles relatively more export than import business, in part because it is a second port of call for vessels stopping first in Southern California or the Pacific Northwest. From Oakland, DST trains go directly east on Union Pacific’s Overland route or down the Central Valley of California on BNSF to connect with BNSF's “Transcon” line at Barstow. They can also use UP's route in the Central Vally and continue beyond Barstow on the former Southern Pacific "Sunset Route" to El Paso, thence on UP to Kansas City (via Tucumcari, NM), Memphis, or New Orleans.
Union Pacific is also restoring its double-track line over the Sierra Nevada at Donner Pass, and clearing tunnel and snow-shed clearances to double-stack dimensions. The Donner Pass route is nearly 100 miles shorter than UP’s former Western Pacific single track route via the Feather River Canyon.
The Port of Tacoma has passed Seattle in container handlings and now ranks in the top ten USA container ports.
Seattle is the closest USA mainland point to Asia, and has a fine deep-water port location on Puget Sound. The port has limited space for landside handling of containers, however. Also the population base for matching domestic loads with international containers in substantially smaller than that of the Bay Area of California.
The Port of Portland (Oregon) has strong traffic in bulk exports (grain, soda ash) and automotive imports, but is not a major player in container shipping. Some investment was made for handling containers at the Columbia River site formerly targeted for export coal handling, which had to be abandoned.
Vancouver and Prince Rupert British Columbia, Canada
Vancouver has a bustling container port and is making improvements to its landside rail connections with two competing railroads, Canadian Pacific and Canadian National. Vancouver has profited from being open when other Pacific Coast ports were shut down by labor actions. Vancouver has a strong position in export coal movement over its Roberts Bank facility, but container handlings are somewhat handicapped by clearance and overall capacity restrictions over the Canadian Rockies, as well as its modest metropolitan population base.
Prince Rupert, BC, is a fine new facility whose rail connections have drawn investments from Canadian National Railway. Close to the Orient, but far from Canada’s population centers, Prince Rupert is likely not to be much affected by Panama Canal widening.
Implications for Mexico Ports of Panama Canal Expansion
The Gulf of California port of Lazlo Cardenas has increased in importance and is a focus for investment by Kansas City Southern de Mexico. It is the closest major Pacific port to Panama, and therefore might be affected negatively after the widening of the Canal; that is, a containership that previously used Lazlo Cardenas, might in the post-New Panamax era want to proceed through the Canal and make Veracruz on the Gulf of Mexico its first port of call.
There were proposals in the recent past, when LA/LB were suffering severe congestion, to build a new port about 80 miles south of San Diego at Ensenada, Baja California. It was a reasonable proposal and might have worked, even though large investments would have to have been made in connecting rail lines for handling DST. This is a good example of the kind of investments that will not be made anytime in the foreseeable future, because of the competitive impact of widening the Panama Canal.