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Talking Freight

The Panama Canal Widening and Implications for Gulf and Atlantic Coast Ports

October 21, 2009 Talking Freight Transcript

Presentations

Jennifer Symoun
My name is Jennifer Symoun and I will moderate today's seminar. Today's topic is The Panama Canal Widening and Implications for Gulf & Atlantic Coast Ports. Please be advised that today's seminar is being recorded.

Today we'll have three presentations, given by Rodolfo Sabonge of the Panama Canal Authority, Bruce Lambert of the Institute for Trade and Transportation Studies, and Richard Wainio of the Tampa Port Authority.

Rodolfo Sabonge is the Vice President of Market Research and Analysis of the Panama Canal Authority. Prior to this appointment he served as Marketing Manager, responsible for market and economic research, competitive intelligence, and customer relations. Mr. Sabonge has worked with the Canal organization since 1986 holding several key management positions in various divisions of the agency.

Bruce Lambert currently works as the Executive Director, Institute for Trade and Transportation Studies. ITTS is a multistate research institution formed to assist member states on understanding the relationship of transportation needs to international and commercial traffic. Previously, Mr. Lambert has worked for the Corps of Engineers, Federal Highway Administration, Standard and Poor's DRI (now IHS Global Insight), the Port of Long Beach and Louisiana State University.

Richard Wainio is the Port Director and Chief Executive Officer of the Tampa Port Authority. Mr. Wainio has in-depth knowledge about the maritime industry, international trade, and global transportation gained from 35 years of high-level public and private sector experience. Prior to coming to Tampa he served as Executive Director of the Port of Palm Beach, FL, worked 23 years in executive positions with the Panama Canal, and held top executive positions with Manzanillo International Terminal (Panama) and Eberhard Maritime Transport Company. Mr. Wainio also served as President and Executive Director for the American Chamber of Commerce and Industry of Panama.

I'd now like to go over a few logistical details prior to starting the seminar. Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. If during the presentations you think of a question, you can type it into the chat area. Please make sure you send your question to "Everyone" and indicate which presenter your question is for. Presenters will be unable to answer your questions during their presentations, but I will start off the question and answer session with the questions typed into the chat box. Once we get through all of the questions that have been typed in, the Operator will give you instructions on how to ask a question over the phone. If you think of a question after the seminar, you can send it to the presenters directly, or I encourage you to use the Freight Planning LISTSERV. If you have not already joined the LISTSERV, the web address at which you can register is provided on the slide on your screen.

Finally, I would like to remind you that this session is being recorded. A file containing the audio and the visual portion of this seminar will be posted to the Talking Freight Web site within the next week. We encourage you to direct others in your office that may have not been able to attend this seminar to access the recorded seminar.

The PowerPoint presentations used during the seminar are available for download from the file download box in the lower right corner of your screen. The presentations will also be available online within the next week. I will notify all attendees of the availability of the PowerPoints, the recording, and a transcript of this seminar.

One final note: Talking Freight seminars are now eligible for 1.5 certification maintenance credits for AICP members. In order to obtain credit for today's seminar, you must have logged in with your first and last name or if you are attending with a group of people you must type your first and last name into the chat box. To obtain your credits, visit the AICP Certification Maintenance web site after the seminar, login using your ID# and password, select My CM log, and select add credits. I have included more detailed instructions in the file share box on how to obtain your credits after the seminar. Please also download the evaluation form from the file share box and submit this form to me after you have filled it out.

We're now going to go ahead and get started. Today's topic, for those of you who just joined us, is The Panama Canal Widening and Implications for Gulf & Atlantic Coast Port. Our first presentation will be given by Rodolfo Sabonge of the Panama Canal Authority.

As a reminder, if you have questions during the presentation please type them into the chat box and they will be answered in the last 30 minutes of the seminar.

Rodolfo Sabonge
Good afternoon, everybody. It's a great pleasure to be here, and participate in this Webinar to give you some of our ideas. At this point we are looking at scenarios in the future, but our guess is what will happen is as good as everybody else's.

I am going first to go over a very brief introduction, then I will explain how we see future canal traffic, update on the canal expansion program, and what we see as the potential changes in trade pattern. For those who may not be familiar with the canal, it's always good to see this cross-section, this map. The canal is 50-miles long between the Atlantic and Pacific Ocean, and brings vessels to a lake that has to be negotiated 85 feet above sea level. Each vessel is going to be using approximately 52 million gallons per transit. One of the limiting factors of the existing Panama Canal is the time it will take to go from one ocean to another. There is very little to improve in the time. The travel time is approximately 18 hours, and average is about 24. What I am trying to say here, one of the limiting factors that will always be in a lock-type canal, the time it takes to move the water between chambers to move the vessel.

Another factor is the size of the load, chambers of the lock. You can see the existing Panama Canal, the vessel that has 960 feet in length, maximum draft, and maximum beam, the existing locations of the Panama Canal. It allows a lot of regions to become competitive in the trade world wide. Otherwise, had the canal not been built, many countries, would be very difficult for them to have trade moved to other parts of the world

As globalization took effect, a lot of things changed, and the canal has become more of a commercial importance than ever before. You can see in the chart, the type of vessels we are navigating the world when the canal opened and the type navigating right now as we speak. You can tell they are really extracting, using every last ounce of capacity of the existing canal in terms of number of vessels, as well as the type of vessels that can transit through it.

Another important change that has taken place because of globalization and because of the evolution of the container and containership is supply management, logistics. Right now we are looking at a world where the shippers are very sophisticated in their planning for procurement, establishing manufacturing in different countries, and this is something that has helped the liner services and the networking that takes place, the planning that usually allow, for instance, a shipper to plan very much in advance what they want to have available in stock or available in the stores, and include longer routes, like Panama Canal, where maybe before they have to rely on shorter routes, using the model that at the same time were more expensive.

As in the past, today the United States is the principle user of the canal, and we think this will continue. More than 64% of canal cargo originates at a port in the United States. China wasn't part of the list of users of total cargo movement that long ago, but now you can see the list with China in terms of trade.

The principle ports that benefit from the Panama Canal are ports in the East Coast, beginning with New York, New Jersey, coming down to Hampton Roads, Savannah, Charleston, ports in Florida and the Gulf. We continue to see these as physical ports that will benefit from the expansion. Some changes could take place, and those are the ones I will refer to in the latter part of my presentation.

A little bit of outlook of what we see in the future. These are slides by Global Insight, some of their representatives are in the Webinar, I know, so I am going to only refer briefly to them. What's important in the slide, you can see the growth pattern we were seeing from 2003 to 2008 in terms of overall metric tons, million of metric tons in the world, of course, was affected by the economic crisis, but there is hope and all the forecasts are saying 2010 will begin again to see growth, maybe not at the same rate as before, but important growth. Maybe more important, we are looking at real exports in the world going up, especially in the United States. Container trade, which is really the focus of our presentation, what potential changes could take place, also experienced a dip in 2009, 2009 and it will again, and this is what I want to point out, you see this growth happening from 2004 to 2008, we will really not see that kind of growth, maybe until 2015. In terms not million of TEUs, that we had in 2008, expect it maybe to be recovered, to be at the same level in 2010, but everybody, the shipping industry, the maritime industry, really looking, preparing for growth rate that was going to be way up here. Buildings already in line, navigating out there, some of the new building to be delivered this year, next year, the shipping industry right now is experiencing an excess capacity that will continue maybe for three or four years more. This will have an impact in restructuring of the industry, also an impact on the number of players two to three years down the line.

But in the meantime we are experiencing, of course, a lot of pressure on behalf of the shipping lines, in terms of rate, because they are experiencing, of course a downturn in freight rate effecting finances and they in turn take the pressure to the service providers like ports and canals. They are all looking to cut costs to make sure they survive this crisis.

Taking a look in terms of the fleet, you can see vessels that are very young in terms of their age, the Post-Panamax even more so, we are going to have plenty of Post-Panamax in the years to come. This chart shows the same information, but this one with the number of TEUs, capacity, in the existing fleet, already placed, will be in 2012.

These, of course, tells us one thing, the expansion of the canal is something that definitely be needed. Most of the lines asked us if it was possible to accelerate the program, they would all like to be able to have more, better utilization of this new vessel, but right now are limited in the number of trade lanes they can serve.

As far as expansion, the traffic of the Panama Canal, you can see in the chart from 1915 to this year, the canal traffic has continuously been growing at a healthy and robust trend. What you see here at the very end, impact of the existing, current crisis, and we continue to see the fundamentals are still there and we will continue in the long term to see growth levels that merit and justify continuing the expansion program.

This is last figures from 2009, fiscal year, Panama Canal, ended September 30. As you see, the crisis did affect canal traffic, but maybe not as much as many would have anticipated or much as it affected others.

In terms of containers, container traffic, this also came down in the past two years, as well as not that much in capacity as you can see. We continue to see an expansion of Panama, not only a place to transit, but to transship. Every container line right now is looking for more trans-shipment in Panama. The reason for that is, you will continue to see the East-West traffic by the Panama, later the post-Panama vessels, and at the same time continue to see ever-increasing feathering from or to North-South regions, to Panama, to be able to increase, improve utilization of vessels transiting. These are a list of ports collected on a weekly basis by the vessels transiting the Panama Canal or Panamanian ports.

These figures are finishing the year, this can tell you how dramatic have been the growth in the movement of containers through Panama, and like I said before, utilizing the connectivity that Panama provides to both North/South and the Caribbean.

This is an inventory of the full container services that transit the canal. Most are in the Asia to East Coast, U.S., route, 15 services. Of a total, 35, you can see you have right now, we picked in July 2007, 43 services, down now to 35, increased capacity of vessels transiting, the average vessel size.

How is this going to continue? This is really one of the big questions you see a lot of talk about, whether the canal or routes are increasing the market share of the imports that come to the United States. This is information from global insight. I know this is being updated frequently, but there is a trend right now, at least in the short term that this market share will continue to increase to a certain extent, but it will stabilize. It will stabilize because at the end of the day it all has to do with the population, where is the consumption moving distribution centers closer to consumption, having a lot in the East Coast and the Gulf. As that has continued, the shippers are also diversifying their sourcing, their destinations, so in the end, what I was mentioning before. As I was saying before, this is really the big question. How much of the market share of imports is going to continue, going to change or increase on all water routes.

Let's take a look at the update on expansion. I like to express when talking about the expansion of the canal the fact that we are utilizing a lot of presentation on my screen. We are utilizing the same navigable channel of the existing canal, we are deepening, widening, constructing a new set of locks on each side, the Atlantic, Pacific, but it is essentially the same canal. We are doing what would be called in other industries a new and improved version of the existing canal. This is why this project is very viable, because we are really not only using the existing canal in terms of infrastructure and geography, but we are minimizing additional costs. This is not like starting a new canal from scratch, you see a lot of stuff now about building canals in Nicaragua, those would have to be built from scratch, and the whole revenue stream has to come from no where. And at the same time you also have to take a long time to do that. Most of the studies I have seen are talking about any other canal being built in the region, maybe 20 years, maybe more than 25 billion dollars. In this case we are using the existing canal, the existing referring revenue streams to finance the project, taking place while the traffic is going on, generating revenues to pay for it.

Now, where the project is right now, you can see one of the most important things about any project is getting the financing. We got the financing secured back in December, from multilaterals, with very good terms. We are really talking about 10-year grace period and 20 year amortizing period. We are financing $2.3 billion and the rest is coming from our own equity.

What's important, of course, about the project, has to do with increasing the capabilities of the canal, allow the transit of the vessels, larger Post-Panamax vessels mainly in the container segment, I already showed. We are using water-saving basis, even though the locks, chambers are larger, we should be able to use less water, from the very first drawing, the cross-section, this is a fresh-water canal, depends on the watershed providing the water, this concept, system, will allow us to use 7% less water than with the existing locks although we can transport levels almost double the size of existing canal.

Most of the phases are already contracted; some already finished, a lot are close or ahead of schedule. This is something that is critical to make sure we finish on schedule. The lock design and build contract was awarded. The Atlantic deepening and widen was recently awarded, only one major contract is currently underbid, the Pacific Access Channel.

More important also is the prices that we have received, you can see in the blue bars, the contractors that won the bid, under budget. The budget is the light green or gray. This is the other bidders, so as you can see in both cases they have been contracted under the budget we had estimated. A reason for that has to do with the fact that when we did the estimates, the economy was in a different situation, and most of the prices have come down because of the downturn, let me point out, the locks project, really the biggest part of the program, we received the final bid that was awarded for $3.2, billion, and the budget for that project alone we are looking at a more than $200 million savings.

What are the potential changes? These are segments that today use the Panama Canal. We think most of the changes have to do with the container trade. There will be some changes affecting dry bulk carriers and liquid bulk, not too many, because most of these vessels are not in the Post-Panamax size range.

Really the most important part of this presentation, what portion of these vessels will be able to use the ports. This is something that I am sure as we speak these numbers are changing, but you can see here, the vessels can call most of the West Coast ports, but the East Coast we are talking about Norfolk and maybe Charleston, but that's about it. One of the things I am sure that has to be taken very seriously by most of the ports in the East Coast, in the Gulf, making sure they are able to receive the larger vessels which require at least 45 feet of draft, meaning they may need about 47 to 50 feet of depth, in a navigable channel. The impact of this Post-Panamax vessels being able to call the East Coast, when you have a large vessel like that you are not going to be calling many ports, you are reducing your ports of call, origin, two or three, destination maybe two with a principle port where they may be able to call fully laden, secondary port to call with less of a draft requirement.

We see, and this is what we have gathered from most shipping lines we have spoken do to the principle ports will be New York, New Jersey, or Norfolk. New York, New Jersey have to deal with the bridge issues, and the southeast ports of Charleston, Savannah or the principle port of call, in the area of Houston, mainly because of the population, and the centers being located there, the secondary port could be somewhere in the West Coast of Florida. This is quite important because we are really looking at a secondary port to serve the whole South Florida from somewhere in the West Coast. Keep in mind it is not only an issue of ports. It's an issue of connectivity, and this is the slide I am borrowing from Norfolk Southern, I don't want to sound like I am advertising Norfolk Southern, but their system something to keep in mind, and Canadian National, coming from Chicago to the region. You can see in this slide, the following investments they are making, the connectivity is important, from whatever port is going to concentrate most of the cargo loading. In the case of Norfolk the corridor they are building will be operational next year, as I understand, going to be critical for making Norfolk one of the principle loading centers in the North East, the same way as whatever happens in developed to make a better connectivity in Houston and also, coming down Miami.

In addition to direct calls, origin to destination, there will be a lot of changes happening in terms of transshipment. The larger vessels are also not going to be able to go all over the world. This is a slide is one that I consider a possible scenario in the future, of having maybe five or at least maybe the most, six, transshipment hubs in the world. You see here the additional one in the Caribbean, not really clear what that will be, but that will be critical for those ports maybe in the East or the Gulf that will not be able to handle Post-Panamax vessels.

To become even more important of transshipment in the North, all the way down to in the West Coast to San Antonio, Chile, important all the way to receive in Brazil. We are already working with Singapore International to develop additional capacity in the Pacific, and interest in developing more so, more capacity in the Pacific of Panama.

As far as the dry bulk carriers, there will be some, as you can see, in the existing canal. Can be carrying up to 80,000 metric tons of cargo without restrictions, actually becomes about 62, now with the expanded canal you can bring vessels all the way up to 200,000 as dead weight, but because of draft limitations we will impose most likely, maybe only 74%, but that will increase capacity of the vessels carrying cargo all the way up to 136, a lot more than what we can carry today.

Same with the tankers, even more so, should be able to transit all the way to VOCC, but because of draft limitations, 73, 74% of capacity, but again would mean a significant increase in the cargo that could be transiting through the canal in these vessels.

An important aspect, we're beginning to study now, also an impact of these Post-Panamax vessels emissions per container, we have done analysis of what this means. As we know this is an ever increasing topic of interest. Mainly for the shippers of the world, more aware of the environmental aspects of global warming and the impact that the CO2 foot print has in making it worse. For this I finish my presentation, we envision the expansion of the Panama Canal, the project that will consolidate Panama as the principle logistics hub of the Americas and of course whatever happens in the North East, Gulf, in terms of projects that will enhance capacity, and depth of the channels, of course will allow some of the ports to become the new, the load centers of the future. I want to thank you very much for allowing me to present.

Jennifer Symoun
Thank you Rodolfo and thank you to those of you who posted questions. We'll address your questions at the end of the seminar. We'll now move on to Bruce Lambert of the Institute for Trade and Transportation Studies.

Bruce Lambert
To give everybody an introduction, I am looking at the Panama Canal from a broad perspective, focused on the Southeast. The success really depends on how we position the canal in the United States; other people realign business patterns to accommodate growth. I am the middle point, broad perspective on the Southeast.

I took this from a World Bank report, echoing some things are you heard Rodolfo say, flows from the transpacific, transatlantic, and the largest container lane in the world. The Panama Canal serves as a very critical shortcut in overall logistics exchange, containers and bulks. Because of that it's important to recognize the dependence of the United States on the Panama Canal.

I am echoing some stuff, I put this picture in the first cut, interesting because sometimes we forget the scale involved in moving cargo, how big the ships really are, how much cargo is really moving on them. We think of them as being a unit, not having a total of activity. There's a lot of interest in investing in ports over the past four to five years because of the growth rate of trade, South America, private capital coming in, financing port. U.S./China trade has been a critical bottleneck obviously, that's obsolete. We need to be sure there's a larger canal, and studies going back about expanding the current size of the canal. It took thank you very much time of until the Panamanian government moved on it. There's competition, of course, the Suez Canal, and we will talk more about that. The port strike on the West Coast put a lot of fear in the shippers who consolidated intermodal gateway cargoes through the southern California and West Coast ports. Really, got them to thinking about how to diversify their gateways to make sure they can move cargo, satisfy their customer orders, regardless of what was happening. Of course there is a lot of emphasis on the West Coast regarding environmental issues. The vessels are changing, getting bigger, clearly there's a logistics revolution occurring with these vessels.

This is a picture of a vessel squeezing through the lock. This is the reality that the ship faces when trying to move through the locks. It's a constraint, takes eight minutes to load the chamber with water, but there's a need to make sure the larger ships coming in are able to move through in an expedient manner.

This are the top 25 ports, interesting if you look, the grayish blue represents import cargo, and the East, total trade, not broken out by destination or origin. I used to work at the Port of Long Beach, tracking cargo, different tiers. The first tier is the Chicago, access, where the railroads interchange. Chicago is a break point from an operation perspective, where the all-water rates competitive versus West Coast, served by intermodal rail off the West Coast. Chicago is a major market in making the determination of cost. The second tier is when you look at how the railroads are aligned, a northern tier in Tacoma, Seattle, then going to New York, and the bottom tier, service to Chicago, much more active, Houston, Dallas, Atlanta, Nashville, two tiers, two gateways flow from the West Coast, and all this East Coast.

There's there middle part of the United States up for grabs. You look at new investment for sites, distribution facilities, construction; it's focusing on this middle ground. Now, a lot of these are built primarily for domestic markets, but they are built in this area where they can be competitive, from a transpacific intermodal movement, and the cost price, point, schedule, liability, things of that nature.

There was a study done and released several years ago, looking at where price points would be from a cost perspective using different types of vessels going into the market I showed earlier, the egg-shaped oval. You can see the advantages going to certain markets, service by an all-water route for ports and exports, and others where the price is fairly benign. Minneapolis is one either way. The strategic in this particular investment discussed is an option, they can service in these hinder land markets in the middle of the United States, easily be served by transpacific or Panama Canal services, depending on the evaluation of time.

This is an IHS global forecast. They expect the trade lanes will recover over the next couple years. The interesting thing about this forecast, they do assume that the U.S. dollar will continue its historic slide, continue to be weak, making imports more expensive, and exports cheaper relative to other values. That can have implications, specific aim in the Southeast where we have a tremendous amount of export bid out of there, making it more attractive to locate in the Southeast for export production.

This is a wild card, the order book in containerships. There's a huge order book of six to 8000, larger vessels that currently cannot call the canal. Despite pleas in the shipping industry about trying to delay orders, cancel orders, these ships are still coming online, and will for the next couple years. It's going to take several years for the rates to equalize, adjust as the surge of vessels come in, despite the recent recovery of some rates over the past couple months.

What's really unknown is how the vessel will rotate through, several ports of call, ranges to make the logistics work from operating costs, as well as from equipment costs, balances, and where the future of distribution will be built in the United States.

One challenge is the ports in the East must be ready to receive these cargoes. There's also questions such as can the ports in the region agree the region will work together to track these cargoes, and then the idea is let the cargoes come to the region, and the market will determine what ports will win. Obviously Norfolk Southern, CSX will continue port programs, link railroads directly to the ports. But we have a problem in the United States, we view some projects as are warranted, some not. We are trying to make a transportation system with long-term economic opportunities for our country. We move away from the idea that every transportation program is pork, strategic investments need to be made. Starting to wrap up, knowledge that the canal is expanding, there's been a trade from the West Coast. Trade will be recovered over the next few years and continues at a slower pace. How much more can we globalize the economy, from production overseas, as well as look more at our export platform to go to markets. Some of the unknowns: will southern California ports continue to push cargo away despite recent announcements over new terminal expansions, working aggressive with the railroads, questions of how much they will be able to ease concerns about the ability to move cargo through. Of course, dredging is an issue, especially regarding the permitting process and the Corp's procedures. How much cargo is divertible, using a 25% number they estimated, could be 10%, and it could be 4%. Rodolfo mentioned the steady state, where vessels will be deployed.

Some of it boils down to who will win the battle between the railroads and canal, the elasticity of shipment, supply chain, evaluating costs. If the railroads are not even, intermodal traffic is a large part of the Western railroads revenue streams, they will need to provide services going forward. I have a slide on external shocks to the canal being built can change the relationship of the canal to the United States and international trade in general. Obviously one is security risks. We talk about increasing inspection of containers, moving offshore, a question of another asymmetric disruption, terrorist attack at a port, how aggressive will the United States be in really monitoring international trade and international ship wants. There's a question of Cuba opening up, not so much competitor or destination of goods, but a transshipment area to open up, platform that could take cargo from China to transshipment hubs, Kingston, Atlanta, looking at the Panama Canal, trying to figure where they will be positioned. In a sense if you look at trade agreements, recent year, China turned away from the United States as being their revenue source, looking more aggressively in Latin America to sustain its engine of growth. There's a limit to how much comes in from China. Free trade negotiations, a lot going on world wide, unfortunately the United States is not involved, though some are pending, including one with Panama. The question of energy, fuel, if we go to and trade, putting carbon foot print implications on global supply clan chains, there's also the question of unionizing truck drivers at local ports. This environmental concern is one I think there are a lot of implications we are not fully addressing as we address the transportation policy.

Jennifer Symoun
Thank you Bruce. We'll now move onto the final presentation, given by Richard Wainio of the Tampa Port Authority.

Richard Wainio
Good afternoon to everybody still out there. Thanks for this opportunity to share a few perspectives on ports and the potential impact of the Panama Canal expansion. In the next 10 to 15 minutes I will probably leave you with more questions than answers. The issues are complex, many shrouded in considerable uncertainty.

I will give you a little background first. Keep in mind all U.S. ports are not the same. They differ in many ways, geographical location alone means they serve different traffic, trade lanes, and commodities by size. Everglades and Tampa serve large local markets, Norfolk, Atlanta are hinterland ports. Long Beach, LA, do both with a large split going locally, regionally to California, and as pointed out, there's a huge intermodal volume going eastward into the East, East of the Mississippi.

Here in Florida, the nation's fourth largest state, in a few years when we return to population growth, taking over third place. We have 14 ports. Four of them, Tampa, Everglades, Miami and Jacksonville share the lion's share of the state's trade. 20% of the state's GDP is related to global trade. That share is growing year after year, even during these difficult economic times.

Obviously trade in our ports collectively is a huge economic engine for the state, creating tremendous economic value and jobs. Nearly 40% of Florida's trade by tonnage moves through the port of Tampa. You would have to add up the cargo from the next three largest state ports to exceed what we handle, that's Everglades, Miami, and Jacksonville. Everglades and Miami are the largest container ports. Jacksonville is growing, has considerable potential, and hopes to become a major player.

Tampa is at the top of the list nationally in geographic size. Tampa's maritime land includes 5000-acres -- to give a comparison, Miami has 500-acres, Tampa is 10 times the size of Miami. We are a small, new, but expanding container port, opening the first container terminal three years ago. Last year volumes grew by 20% while nationally volumes were declining 20% with West Coast ports suffering greater declines. This fiscal year we are looking at a 10% increase. Stronger growth is expected this coming year as we added another service.

Here in summary are three issues which are key to Tampa's perspective on the development of our port as a container gateway. Our focus, though, immediately, primarily is on capturing a larger share of the Central and West Florida markets hereto for served by long-haul truck moves into Central Florida from through ports on the Atlantic Coast of Florida and from outside the state. The canal expansion is an important factor for Tampa, but less so when we talk in comparison to the first priority, to capture a larger share of the local market. In fact, I believe, I don't want to be too controversial here, but many ports are overstating the possible magnitude of the expansion on the ports in their regions. Thirdly, Tampa is financially healthy to a large extent because we are taking a prudent and incremental approach to expansion which is to tie port expansion to market developments and needs. The way many ports go about it, will bring capacity online that will in my view significantly exceed market demand for a significant period of time.

When I refer to the local market, this is basically what I am talking about. The Tampa Bay region, an area extending 100-miles North, South, East of us, encompasses 8 million people, the largest consumer area in the southeast. The Central Florida container market, presenting this in a somewhat different way, you can see the region generates at least 400,000 loaded containers annually. When you see the big numbers, million containers, two million, moving through ports, ask how many are loaded. We obviously move a lot of empties as well. It's the loaded containers that result in a shipping line's decision to serve a particular area. They don't want to move empties; obviously, they need cargo in both directions. We are talking about a region handling 400,000 loaded containers; I think that number might be low. The actual market moves probably exceed the 400,000 level in this area.

Importantly, you can see in the pie chart half of that moves from outside the region of Florida, mostly through Savannah and 13% via the West Coast. Some portion of this, plus any future trade growth, some portion of future trade growth is what we are talking about when we talking about diversion to the all-water route, post-canal expansion after 2014, when the expanded capability is there in Panama.

Simple math, we are oversimplifying when we say this, but simple math tells you 13% of the market of 400,000 TEUs is not that huge. Only some portion of what gets diverted through the canal will come to this area. Simple math suggests that the canal expansion is important to us, in various ways, but we're not talking about a gigantic incremental market. East Coast ports all the down to Norfolk will benefit the most, southeast ports less so and Gulf ports even less.

Central Florida, along the I-4 corridor, I-75 up toward Atlanta is an expanding distribution center. I won't go into the details. CSX is planning to build an integrated logistics center in Winter Haven outside Tampa. It will more likely support continued growth of southbound movements from as far away from Norfolk.

Only time will really tell if that's the case, I will get into things that will impact that. Future growth in Tampa is linked to a number of developments in a positive way. For example, we see synergies between Tampa, and these Gulf ports, unlike Atlantic ports who are in direct competition with their neighbors. We serve a different market than New Orleans, Mobile and Houston. Thus, their growth helps bring services in to the Gulf and, provides Tampa with greater opportunities.

The canal expansion, Bruce and Rodolfo went through this. This is what we are really talking about, bigger ships. What's important to us? What is important to us are the implications of canal expansion. Briefly I will comment on these. Keep in mind, the first bullet shows a possible 25% shift of West Coast cargo to to the all water route through the Panama Canal post expansion. When we talk about a 25% shift, looking at West Coast or LA, Long Beach numbers, not 25% of all cargo, 25% of those intermodal moves identified which is about half or so of their total container business. Really we are talking about a few million containers, three or four million containers that might be shifting around to all-water and then in turn are shifted around to ports all over the Gulf and East Coast.

Most of that incremental business and a significant portion of what now moves through the canal on the Asia East Coast route will shift to larger vessels. Most of these vessels will be in the six to 12,000 TEU range, the work horse will be the 6,000 to 8,000 vessel, allowing them to get into ports with up to 45 feet of water or less. Meaning the largest vessels, the 10,000 to 12,000 vessels can only use a few East Coast ports, New York, Norfolk, but no Gulf port will be able to serve those giant vessels directly. Transshipment becomes a significant option for ports that can't handle the large vessels. But if you have 43, 44 or 45 feet of water you will see ships in the 6,000 to 8,000 range calling at your port. Market opportunities vary by region. Most of the incremental cargo we talk about moving all water will go to the North Atlantic region down to Norfolk, not all ports need to deepen or expand container capacity; not all will share in this new business. One of my great concerns for a long time, I have been talking about, this dredging process we have in this country, a system that unfortunately encourages all the ports to try to keep up with the Joneses. It results in an inefficient use of resources.

Dredging, if your neighbor is doing it, you do it. The process itself takes forever. If you think 15 or 20 years from now you need a deeper channel, you need to move now, seek authorization, and go through the DRIs, studies. Whether you need it or not, you move through at least the first phases of the process. The question clearly is: Is this the most efficient use of resources? How many deep water ports do we really need and which should be deepened, especially beyond 45 feet. It's more than dredging costs we are talking about. When the Corps does feasibility studies, they are primarily looking at the cost of dredging the channel, not system costs required to develop into a major container operation. I am not picking on Miami, using them as example. They are authorized to 50 feet, they are going to get there over the next few years, they have basically a three-mile channel, dredging costs may be $150 million, not huge in the context of dredging, but to make the system work they need a billion dollar plus tunnel, port upgrades, better connectors, roads at the end of the tunnel, and if they hope to become a major intermodal port, they will be spending billions of dollars.

They still need a large logistics center or inland port to serve the rail connections. You add up those costs. Is it worth it? The answer is maybe it is, maybe it isn't. My point is everywhere in this country we need to take a harder look, more strategic look at projects we undertake, and that's not, obviously, just limited to port projects. All of you in the transportation industry know what I am talking about.

For those that can't handle the deepest ships, transshipment will be important, there are many, many ports in the Caribbean basin, Rodolfo talked about Panama, but there are many others already able to handle large ships and more, some are being expanded, more are being built. Bruce mentioned, one day there may be a large transshipment facility in Cuba, near Havana, one thing Tampa is watching very carefully.

I am not going to go, because of time into all these points. You can read these bullets yourself. There are a lot of issues, a lot of development that will affect the volume of traffic that moves into eastern Gulf ports, a few are listed.

The last bullet, one that I add, my own view here, I think too many consultants and others have been basically indicating that you are going to have a doubling of container moves over the next 10 or 20 years. They say, we collectively on the east and gulf coasts don't have the capacity to handle this expanding; you have to build new green field container terminals. I don't believe that. I believe that basically our ports in the East and the Gulf have the latent capacity to be able to handle the kind of demand we see well into the future. I mean capacity that we can fairly quickly bring into play by expanding current facilities, improving productivity, having labor work an extra shift, adding better equipment, improving the processes so they can greatly improve productivity at the ports, and then you have many ports who have land, they can quickly develop into container facilities, and so the bottom line is, I am not sure if you have to spend the kind of money some people are contemplating to get the capacity you need in the future. There are easier ways, perhaps, to do it.

There are many variables that cloud the future of any forecast. All crystal balls are cloudy. These are just a few things, also touched on by Bruce.

What's Tampa doing specifically to prepare? Identifying the real market opportunities and recognizing the limitations. We don't operate on pie in the sky. We look at what baseline business we can clearly get that will make all our projects feasible.

We are expanding in line with market growth. We are improving access to interstate truck network. The I-4 cross-town connector is underway, it's been bid, construction will start soon, and we are moving to improve rail access, although longer-term we see trucks as being the main element of inland transportation, not rail. Rail will provide an option. We have on-dock rail at this point, expanding rail for shippers if they choose Tampa, but for most market, trucks will be the best way to go probably.

We are moving to a 40-acre terminal, in the next month it will be 40-acres, three cranes. We have plans, a lot of land. We can quickly, in the next three to five years, undertake a phased expansion to 160-acres of operating area, bringing in equipment, putting in new gates, all things needed to turn it into a first-class operation. When we build out completely, we are talking about a terminal with capacity of 700,000 TEUs, or more, if you do things to enhance productivity, move containers on a 24/7 basis, you could probably put a million containers through this terminal. More than enough capacity to meet the demand we see in all of central and West Florida and to handle expanded intermodal business, with the help of CSX.

The Port of Miami is building a tunnel.as part of their container terminal expansion. Her in Tampa our system includes the construction of the I-4 Crosstown connector which would take our container directly up a ramp from the termnal on to the connector with truck-dedicated lanes, right to Interstate 4 and 75, heading up into Atlanta within a matter of hours after they arrive at the port of Tampa.

Most importantly, though, Florida and the Port of Tampa have to keep in mind the East/West routes aren't the most important from Asia, mainly China to Florida. Our state is the gateway to Latin America, whether today, or 10 or 20 years from now, the key to growth is how well we position ourselves to serve this entire hemisphere, from Brazil, Chile, up to Mexico. We are doing things to make sure Florida remains the gateway for this region.

The last slide, for those who want to hear more, more detail about the issues we have discussed today, we invite you to a conference on January 26, here in Tampa. Rodolfo's boss, Alberto Aleman, has accepted to come speak. We have many other speakers lined up. It's cosponsored by the AAPA and MARAD, another great conference, the third one of its type. Last year we had over 200 quality people in attendance, and this year we expect even more. Please show up.

That concludes my remarks. Thank you.

Jennifer Symoun
Thank you, Richard. Another great presentation. I apologize for the technical difficulties. We will start the Question and Answer session and I will start with a question posted online. If we get through those in time we will take questions over the phone, quite a few. I will start from the top.

Question and Answer

Jennifer Symoun
First question is: I will put this out to all three presenters, let you jump in. This presentation covered implications regarding the gulf and Atlantic coast, what are the impacts to the Great Lakes?

Bruce Lambert
I will take a stab at that. The Great Lakes have done a number of studies on the containers into that service. They are not necessarily Asian trades, maybe more European trades. The bulks go through the canal, obviously bulk traffic through the Great Lakes, but I don't see the canal as being a competitor or assistance to the Great Lakes, it is a separate market.

Richard Wainio
Rodolfo can probably address this, I would only say, my experience working the canal, knowledge of trade routes, what I know about the Great Lakes, I agree with that. I don't see what's going on at the canal as being a major factor for the Great Lakes area. If Rodolfo got disconnected, I noticed a couple of questions that came up about the canal itself, expansion project, that were pretty straightforward I can address if you would like me to, as we come to them.

J. Symoun
Sure. Rodolfo, sounds like we lost you, if you want to try calling back in, let us know you are back on. I will keep going on here. The next question: What kind of impacts would a change in manufacturing sourcing location, Asia or near-shoring have on Panama Canal volumes and revenues?

R. Wainio
Obviously I can't answer that for Rodolfo in terms of specific impact on their revenues. But obviously, the sourcing, East Coast of the United States, we have been talking about East/West trade through Panama, intermodally, we shouldn't lose sight of the fact a good part of trade comes through Suez. I think there will be a larger share coming through Suez, would work against the Panama Canal in a sense, doesn't mean they won't maintain or have very large volumes through Panama, but clearly, if you shift from China, Japan, Taiwan, South Korea you mentioned Cuba, I see Cuba potentially in the years ahead becoming a major location, a la Mexico, Dominican Republic, and others. I see a lot of companies around the world to position 90 miles off the United States. That will become a play some extent.

Rodolfo Sabonge
Okay. Well, I can follow-up on what Richard is saying. Yes, we see some movement or some changes in the manufacturing and going south. We think the Panama Canal as far as Asia is concerned is north of Hong Kong, anything south of that, manufacturing moving to Thailand or Vietnam or Indonesia, something likely going through the Suez Canal. In the case of Cuba, yes, we have also been following what is happening in Cuba and we see an important development in case the embargo is lifted, the many possibilities that bring to Cuba to both become a major transshipment hub, as well as an interesting place to manufacture.

There was another question addressing this same issue I would like to respond now. One thing we like to see in the future and are working for this, to make sure that Panama has value in everything that is coming through here, instead of just looking, and watching vessels go through. First, the development adds value to shipping lines in terms of being able to not only transit, but fill the vessel with cargo going in the return trip. We have senior in the Pacific side for instance, the development of most of the loops, all the way from Mexico to Chile, coming to transship in the Pacific side, so the balance in trade will continue in between the United States and Asia can for the shipping line become added value to use the canal. That way they can bring additional cargo, freight rate in the return leg and that is one of the areas we want to expand. We also want to position Panama as a place for transshipment and a place to add value to the cargo itself. One of the initiatives we have been working on is to actually sell Panama as a place you can be closer to a final market, do more things to the cargo rather than just transshipping as has been in the past.

J. Symoun
We had someone type in, could you clarify what transshipment is.

R. Sabonge
Okay, transshipment, in the general sense is moving from one mother vessel to a feeder vessel, cargo that is destined to a port that may not have enough densities of cargo requirements to be able to call for the mother vessel to go there. Like what you have with airlines, transshipment hub in an airline, like Miami, a lot of larger airplanes bring traffic shifted to smaller airplanes. Bruce, I wanted to give you a chance.

B. Lambert
I wanted to add two things. One, there's the pending free trade agreement with Panama, obviously if we ever signed it, because of Panama as a country has been very well in banking, communications, with fiber optics, there's a lot of competition to develop the corridors, the logistic centers, supply chains. Really, tying that into the global economy creates value, things of that nature. Nobody mentioned, of course, the largest trade lanes in the West Coast, America West, South America, the ongoing institution relationships, supply chain agreements. Inertia will keep some of the trade patterns.

I will put in a pitch for the importance that the United States moves forward with these kinds of agreements. I assume most of us on this call believe in, but certainly I support free trade. Not trying to take a political position on this, but global trade is increasingly important to this company and we need to move forward with these agreements. I think we personally get away from Latin America being a source of drugs or destination for a cruise and view it as an economic neighbor with a lot of potential if we can develop trade, stabilize democracies.

R. Sabonge
I would like to have something regarding these trade lanes. I agree with most of what has been said, in the sense there may not be a total growth significant enough to make all the ports go for the deeper channels. But what one has to keep in mind, when these larger vessels start moving in this all-water route, most likely they will not want to call in many ports. So, will be some winners, some losers. The larger vessels will want to call ports where there are enough densities of cargo to fill or load most of the vessel.

This is really why we see also Panama with regards to the rest of the transshipment places in the area. You have to stop by Panama to transship. Some of calling Panamanian ports first, and then after transmitting enough added cargo for the vessel to make it advantageous and profitable. You need to keep this in mind: When you have the larger vessel you want to minimize the stops, and there will be some port that's are definitely out the picture, have to be receiving feeder vessels from wherever transshipment hubs may be in the Caribbean or unless there's a change in the Jones act, you will see something else. As it is right now, you will have direct calls for cargo that is going to go to specific ports where they can really use most of their capacity, and they are ready to unload having or giving the connectivity to maybe secondary places of consumers.

J. Symoun
Okay. Thank you. I think we are having a good discussion here. I don't think we are going to get through all the questions, I will skip around; pick some of the questions out. If we don't get through them all, I will send to the presenters, when I send follow-up information I will e-mail responses the presenters have provided for the questions. In what year will the Panama Canal expansion project be completed and open to larger cargo ships?

R. Sabonge
In the year 2014 is the plan. We hope to have it for the date we commemorate the 100 anniversary of the canal.

J. Symoun
What lifespan do you estimate on the new lock?

R. Wainio
If you look at the bulk industry, the very large containers, ULCCs, those are so big there are only specialized ports that can handle them. The 12,000 and 13,000 TEU vessels are really going to be in main line, long-distance high density lanes, won't be running all over the place. I really think because of the extent of tonnage on order, and being deployed over the next few years, that the 6,000 to 8,000 vessels will be the new work horses in the industry. The high density transpacific will be pretty much in those lanes.

Driving ship to ship size is essentially the type of cargo and volume of cargo to some degree length of the trade route. For whoever asked that question, keep in mind that right now there are basically only three or four types of cargoes in the world out of the hundreds of types that move in ships that are larger than Panamax. Coal, iron or, crude petroleum, but with expansion of the locks, chemical carriers, product carriers, we are talking ships that even now don't exceeds the tonnage range. The very largest ships were built back in the 70s, haven't built them that big since, when you talk about tankers, bulk carriers, they haven't been building bigger and bigger ships, except container ships. And there, there's got to be not only in terms of engineering, technology, but also in terms of volumes, ports, systems, roads, everything else, there's a limit to how many containers you can bring in on one ship. If you are talking about bringing in, as we have been discuss, a ship of 15,000 TEUs, very few ports in the world can handle those efficiently.

The bottom line here, it took hundred years or more before they started to bring so many container ships that Rodolfo needed the expanded lock. I don't think you will ever have to expand it again. If anything you will have to build some new, different type of transportation system 50 or 60 years down the road. Put on your science fiction, think of a world that doesn't have ships. As long as they have ships, the canal with the expansion lane will be pretty much enough to handle the vast majority of vessels on the world's routes.

R. Sabonge
I want to add something about size. When we were doing marketing studies to determine the size of the new locks, we were meeting constantly with the different shipping lines, their planning, and strategy people and even though we received feedback from some of them that they would like the locks to be larger, to be able to accommodate larger ships, talking about 18,000 TEUs. We really had a very close look at the benefit of this. We arrived to a mid-size from what they were asking. Something that, by the way, we still think, agree with the other speakers, that the work horse in this route is not likely to be the 12,000 or maybe not the 10,000 TEU vessel, but more likely the 6,000 or 8,000 vessel, taking some time for those to be fully deployed in these routes. We think the vessel put in service depends mainly on the density of cargoes and the amount of cargo concentration you can have in the specific ports you want to call. I know a few years ago there was a theory that once the canal expanded the old trade lanes of post-Panama would converge into what he called the equilateral route, around the world with routes that would be moving one in East direction, and one in West direction. Many things have been written that need to be analyzed, but we really think the size of the locks we came up with is a size that will be able to serve world trade for maybe not as much as 100 years, but maybe long enough for us to plan, decide if we need to expand further the canal.

We don't think there will need to be an expansion of the canal, again. If there was demand, and really a financial justification to expand further, we would look at that, and study it like we did this one and we would determine when we needed another expansion and if it merits the additional expansion.

J. Symoun
Thank you. We are actually out of time now. I know we have a number of questions we didn't get to. I will send those to the presenters, and hopefully get responses out to all attendees via e-mail. This is a really good seminar, a lot of information; I appreciate everyone's interest and all three presenters for taking your time. I know you are all busy. This was very informative.

Thank you all for attending today's seminar. The recorded version of this event will be available within the next week on the Talking Freight website.

As a reminder, if you are an AICP member and would like to receive 1.5 Certification Maintenance credits for attending this seminar, please make sure you were signed in today with your first and last name or type your first and last name into the chat box if you are attending with a group of people. Please download the evaluation form and email it to me after you have completed it. Please also download the CM Credit instructions if you are unsure of how to obtain your credits for today's seminar.

The next seminar will be held on November 16 and will be about Security and System Resiliency.

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Enjoy the rest of your day!

Updated: 03/28/2011
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