Panama to Port Revival

August 24, 2012 11:39 PM
Panama to Port Revival

Supersized ships might spur trade opportunities

Salty, humid sea air means money for Midwestern grain farmers. The journey might have started in a dusty Illinois soybean field, but the bushels won’t have any real value until they kiss the Gulf breeze at the Port of New Orleans. Without a contract and a fast and secure way to handle and transport them to international destinations, those beans might have trouble competing in global markets. That’s why the grain export game of the future will likely be won on the efficiency of our American ports and, no less important, the intermodal rail, truck and barge lines that feed them.

The good news is that there’s plenty going on at our coastal ports in an attempt to remain a global competitor, spurred by the anticipated completion of a $5.2 billion expansion of the Panama Canal’s locks. The upgrade will enable the passage of larger ships (as in humongous!) and more container throughput, which is jump-starting competitive upgrades in U.S. port terminals. For farmers, it might also help to create new grain markets associated with increased container shipping through these more efficient ports.

The race is on. Fifty-nine commercial U.S. seaports receive products for 300 million Americans, but not every port will benefit from the 2014 Panama project completion date. That won’t stop every coastal city mayor and regional port authority from trying. With 69% of the Panama Canal’s commerce moving to or from the U.S., it’s a race to see which ports can upgrade fast enough to match Panama’s pace.

How Bigger Ships Impact Logistics

p38 Panama to Port Revival chart
The problem with scale is the risk of introducing too much capacity into the supply chain, upsetting the fragile supply/demand balance that exists in certain shipping lanes. This disrupts service, causing container surpluses and company consolidation.

The Georgia Ports Authority (GPA), for instance, has been particularly active. Referring to the Port of Savannah as the "fastest growing container port in the country," GPA spokesperson Edward Fulford says construction projects are under way on a 1,200-acre container yard—the largest single container yard in the U.S. With 23 ship-to-shore cranes on hand, another four are on order.

Port of New Orleans spokesperson Chris Bonura says the port just put two new cranes into operation to meet the additional capacity the Panama Canal expansion will generate. "We’ve also been making investments to our container terminal," he adds.

The same could be said of the Port of South Louisiana, which handles 60% of all U.S. grain exports. Plans are under way to construct a new container terminal and a liquid-cargo dock facility. Bonura says that Louisiana boasts five deepwater ports (defined as 40' deep) on the Mississippi and that this stretch of the river is dredged to 47'. Fully loaded, the monstrous post-Panamax ships will need a draft of 50', but currently there is only one U.S. port on the East and Gulf Coasts that can handle a fully loaded post-Panamax vessel: the Norfolk, Va., terminal. The Port of Baltimore is on target to finish dredging by the end of this year to officially be the second.

"You only need a 50' channel if you’re loading a post-Panamax boat to full capacity or receiving a fully loaded boat," Bonura says. That means three times the number of containers currently being hauled by smaller Panamax vessels. "These post-Panamax boats won’t be able to go from port to port because of their high operating costs," he says. "What you’ll see is additional capacity going through the Panama Canal, but you’ll see transshipment points in the deep harbors like Freeport [Bahamas] or Kingston [Jamaica], where post-Panamax containers will be off-loaded onto smaller transfer boats."

Scott Sigman, a senior consultant at Informa Economics, says that for inbound vessels, it "cubes out before it weighs out." In other words, not all containers are maximum weight and unloading takes place along the shipping route. At the same time, he notes, exports are heavier. "We ship back a lot of recyclables and ag commodities which load up to the physical limits of the container, so there are some outbound concerns."

An Informa Economics study of the Panama Canal expansion says "the use of containers emerged [in 2007] when dry bulk ocean freight rates were at record levels. Many containers were being loaded on a container ship from the U.S. and returned empty to Asia. This created a backhaul opportunity for grain."

The bean dream. It’s not common for agricultural products to move in containers, but that’s changing. Informa’s Sigman, who is also a transportation and export lead at the Illinois Soybean Association (ISA), explains: "The amount of foreign material can be reduced; the containers are wind- and watertight. Samples are taken and we know quite accurately what was loaded. Since the Federal Grain Inspection Service is inspecting all those lots, what is departing the U.S. is getting to the customer with the same seal on it."

Grain and Soybean Exports by Port

p40 Panama to Port Revival chart
Grain exports are predicted to grow at a steady pace if prices and quality remain attractive to overseas buyers. The Gulf ports are expected to process five times more grain than other ports due to the proximity of the Panama Canal.

While identity-preserved grain products have made up a relatively small amount of total grain shipped, Mike Steenhoek, executive director of the Soy Transportation Coalition, believes that future container opportunities await farmers. "Many [import] customers would rather receive smaller shipments due to quality issues or lack of storage," he says. For example, poultry producers in Vietnam. "Asian buyers want to buy from states such as Nebraska and Iowa, as opposed to some big government contract, due to greater quality assurance."

Steenhoek also refers to the marketing efforts of the ISA. Touting "the best soybean conditions" and promoting non-GMO, low-linolenic and clear-hilum tofu beans, ISA is positioning Illinois soybeans for a specialized container-shipped market.

Informa’s Sigman says that in Asia there is additional evaluation of growing conditions and a sensitivity not just to yields, but to oil and protein. He says soybeans may be from Illinois or Indiana, but regional differences in climate and soils are becoming more important from the Asian buyer’s perspective. "This speaks to containerization and lots of product."

If container shipping is to become a marketing opportunity for agriculture products, challenges must be met. Container movements go from "point A to point B," Steenhoek says. "Is there a customer at point B?" he asks, referring to stranded inland containers. Getting these containers back to port or repositioned in other parts of the country may be more cost-effective if they are loaded with product that is contracted to a buyer. Steenhoek says Chicago is key, since it is the largest rail hub in the country. "Containers that stack up in rail yards could be transloaded to grain elevators, loaded with grain on unit trains and sent to the West coast for export to Asia."

This might be wishful thinking, but the logistics are there, according to Steenhoek. The Informa report states that "bulk grain and soybean export capacity is expanding 10% nationally and in the range of 30% for the PNW [Pacific Northwest]."

As the third largest port on the West Coast, the Port of Portland, Ore., is also the largest wheat export gateway in the U.S. It has been steadily making improvements to accommodate more container business; 52% of 2010 containerized product was hay, grain and agricultural products requiring temperature control. "Much of our trade involves inland markets," says port spokesman Josh Thomas. Should soybeans and corn find their way to the port on shuttle trains, he says, it will be prepared to handle more grain.

Efficiencies. Maritime shipping consultant William Coffey knows all about the weakest link in the field-to-port chain: the load/unload logistics of trucks, trains and barges at the port. He says there is a sharp contrast between port efficiencies today and what they used to be, with more
ingress lanes, automated entry gates and card check-ins for truckers.

"Long lines are a thing of the past, even with new requirements enforced by the Department of Homeland Security after 9/11," he says. "The key is to be synchronized. If the cranes are moving 50 loads an hour, you’ve got to have something underneath them that’s capable of moving 50 loads an hour or you’ve got a catastrophe."

Though Pana-mania is stimulating billions of dollars in investments in U.S. port and intermodal infrastructure to create transportation efficiencies, Coffey says the jury is still out on how much of an effect the Panama project will have. But it should be a signal to farmers that this might not be just "a pig in a poke" with little grain marketing potential on the backside. It’s a competitive advantage.

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