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IT’S FINISHED! – After 9 Years of Construction, the Panama Canal Expansion Will Boost the Port of Houston

(By Dale King) HOUSTON – With the opening of the expanded Panama Canal this past Sunday, and the promise of use by a new breed of mega-ships carrying vast numbers of cargo containers through the revamped, 102-year-old, trans-Central America channel, the Port of Houston is looking for its share of the impending action.

Faron Wiley

Faron Wiley

“Frankly, we just want more volume. Content of the containers is secondary,” said Faron Wiley, vice president, Industrial & Logistics, for CBRE Group, the Los Angeles-based commercial real estate services and investment firm.

It took work crews about a decade to build it, and more than $5.25 billion to finance construction of the larger locks that allow the Panama Canal to accommodate the mega-ships known as post-Panamax carriers. The Port of Houston has already begun prepping for the day when ships the length of three football fields carrying containers stacked as high as 15 stories will make their way through the historic waterway. And more changes to the port are on the way.

“The channel has been deepened sufficiently and the port has implemented plans to make equipment upgrades over the next several years,” said Wiley. The Port Authority has also announced plans to make $700 million worth of improvements in the Barbour’s Cut terminals over the next 10 years to make way for the mega-vessels.

With the renovations and the channel now at a depth of 45 feet, the Port of Houston can handle a volume of 2,131,000 TEUs (20-foot equivalent units, the size of one container). The port has 30 cranes, 17 large enough to load post-Panamax ships.

David_Egan_Headshot_120.jpg

David Egan

“The debut of the expanded Panama Canal marks a fundamental shift in the shipment of Asian goods to the Eastern U.S.,” said David Egan, head of Industrial & Logistics Research, The Americas, for CBRE. “The short term won’t bring massive, game-changing gains for East Coast ports because much of that repositioning already occurred in recent years. But it will shift U.S. cargo delivery from slightly favoring the West Coast to a more even split between the two coasts.”

There’s another upside to the broader canal. “Houston’s competition for goods is still the West Coast or further south in Mexico,” Egan said. “But, for its real core business – oil, gas, petrochemicals and by-products — I’m not sure they have serious competition.” Wiley said he sees some competition coming from the ports in Savannah, Ga., and Charleston, S.C.

Still, there’s a lot of good for the busy Texas port in the canal deal. “Houston exports a lot of raw plastic pellets to China, where it is made into toys, bottles and other plastic goods,” said Wiley. “There are also some big warehouses in Houston for major retailers that have products shipped in from the Far East and distributed across the nation.”

The Houston port is eying Asia – a current trading partner – to increase its commitment to ship via mega-vessels. “Mega-ships are all about China and the vast array of consumer goods they export to the U.S.,” said Wiley.

“Long distances and large volumes justify investment in mega-ships by the Asian routes.” Stacking larger numbers of containers on each ship translates to less expensive costs per vessel – another advantage that Houston hopes to promote.

The going theory is that it’s not only cheaper, but easier to fill a mega-ship with containers and sail it from China through the Panama Canal directly to Houston. The alternative is to ship to Long Beach or Los Angeles, then load the containers onto train cars and send them by rail halfway across the country to Houston.

The pro-Houston faction is also counting on a more placid labor situation in Texas to entice the mega-ships to skip California and make the voyage entirely by water to Houston. Port of Houston Chief Commercial Officer Ricky Kunz notes that the local port has not endured the same, crippling labor strikes that have literally shut down West Coast facilities.

The bigger canal could improve Houston’s shipping numbers which really aren’t that bad right now. “Though container volume grew by 9.2% in 2015, the value of goods exported from Texas – many of which travel through the Port of Houston – dropped to $251 billion from 2014’s $289 billion as the falling price of crude lowered petroleum export values,” says CBRE’s 2016 North American Seaport & Logistics Annual Report.

“Despite these losses,” the report says, “the Houston area is projected to see an increase in new exports in the near future. The ship channel and southeastern Texas are set to experience a massive uptick in petrochemical product shipments as billions of dollars in downstream petrochemical projects begin to come online in the near and medium term.”

CBRE’s study clearly notes the impact of the mega-ships slated to arrive through the canal. “For the Port of Houston, [overall] traffic is anticipated to increase by 10 to 15% over the next several years,” says the report. “The port’s expansion also represents more opportunities to manufacture and export other commodities, including petrochemicals, resins and plastics, to advanced-manufacturing countries such as Chile, China, Japan and South Korea.”

“Although Houston is in the middle of a serious commodity slowdown, the city’s healthy retail consumer is keeping distribution users active in the market. However, weakened by low oil prices, the manufacturing industry – in particular, factories producing oil and gas equipment and parts – is not in the clear, and will likely be facing a tough 2016.”

Combined with the expansion of the Panama Canal and the Houston Ship Channel, midstream and downstream companies see the Houston and Gulf Coast region as a solid investment – evidenced by the nearly $50 to $60 billion in projects in the Houston area, notes CBRE’s report.

Such expansion, it adds, along with the canal enlargement, will be important economic drivers for Houston going into 2017 and 2018, further solidifying Houston as a major player on the world stage for global trade.

June 27, 2016

 

 

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