The Panama Canal Authority is experiencing every company’s dream—a steady influx of business with more than it can handle in the wings. Fueled by the rapid growth of Asian exports, the canal has to expand to remain viable. And when it does, it will ensure that the fleet of post-Panamax (PPX) ships, which grew 143 percent since 2002, can finally transit the canal—raising the threshold of trans-Pacific trade up a magnitude.

Today, ships carrying more than 4,000 TEUs generally are too big for the Canal’s existing locks. In planning a new lane, with longer and wider locks and deeper channels, the Panama Canal Authority (ACP) expects to double cargo transiting capacity. With that capacity, say industry observers, should come reduced overall shipping costs and expanded shipping options after the new lane opens in 2014, in time for the canal’s centennial.

Rodolfo Sabonge, vice president of research and market analysis for the Panama Canal Authority, suggests this all-water route may also reduce pollution, help distributors to locate distribution centers closer to the population, and boost the economies in states where those new facilities may be located.

U.S. carriers and businesses, while less ebullient, are optimistic.

A spokesman for Procter & Gamble Coffees, notes that although “most of our coffees don’t come through the canal, it could help with our Asian imports,” namely coffee beans from Vietnam or Indonesia. As an alternative to landing at West Coast ports and being hauled to processing plants in New Orleans, Kansas City and Sherman, Texas, shipments could come into New Orleans directly. “It’s too far out,” cautions Lars Atorf, to figure a cost/benefit analysis.

For Tokyo-based container ship operator Kawasaki Kisen Kaisha Ltd. (K Line), seven years isn’t too far ahead to start planning. Last June, it launched a weekly container service linking Asia with the East Coast of South America, “to meet fast-growing market demand,” and as a prelude, say observers, to pushing northward up the Atlantic.

Another very large Asian shipping line, which asked to be unnamed, sees other benefits, too. “It will let us get rid of uneconomical vessels,” an executive notes. The company expects to take delivery on 5 PPX ships by about 2010. But, he adds, terminals, cranes, capacity and infrastructure all need improvement. “Some ports will have to grow.”

Port improvement is, in fact, a recurring theme when discussing the Panama Canal expansion. APL’s Bob Sappio, senior Vice President, Transpacific Trade, says the new lane will allow economies of scale possible with PPX ships of 8,000 to 10,000 TEUs to be passed on only “if the terminal infrastructure in the U.S. is capable of handing them.” APL is hammering that message home at every opportunity. “If the terminals are incapable of handling the volume, the benefits of the expanded canal will be less.”

Port expansion

Today, only four U.S. ports can handle PPX ships—Seattle, Tacoma, Los Angeles-Long Beach, and Norfolk. East Coast and Gulf ports are preparing to change that.

“Once we heard about the canal expansion, the Army Corps of Engineers began to study its likely impact on Port Everglades,” notes Allan Sosnow, Port Everglades’ environmental project manager. It’s dredging channels now; in the future there are plans to increase capacity and intermodal operations, add new berths and enhance operational efficiency.

The expanding canal is only partially responsible for the burst of activity, though. U.S. ports need extra capacity regardless of what’s happening in Panama. “We all hope to move forward, and we all need to deepen channels and construct facilities,” to handle increased cargo, notes Richard Wainio, port director and CEO, Tampa Port Authority.

At the Port Authority of New York & New Jersey, expansion is underway. Half of its cargo, by value, comes from Asia already. To accommodate PPX ships, dredging is underway to deepen the harbor to 50 feet by 2014, according to spokesman Steve Coleman. (That project is designated a national priority by the U.S. Army Corps of Engineers, with a fiscal 2008 budget of $91 million.)

“We expect cargo levels to increase about 7 percent per year, and to double in 10 years from 5 million TEUs per year today,” Coleman says. The port authority is also in the midst of a $600 million project to add intermodal rail access to all terminals. In 2006, it added the capacity for 350 additional lifts and expects to handle 1.3 million by 2011,

Being able to accept PPX ships is only part of the issue for the ports. Even without the canal’s expanded capacity, “Significant delays are likely in the next few years,” notes Tampa’s Wainio. “The only part of the business expected to grow is the container business. So, to be a major player, you have to expand.”

For manufacturers or importers, though, there are some tradeoffs. “You should get lower unit costs,” Wainio says, by sailing 8,000 to 12,000 TEU vessels, but moving from Los Angeles-Long Beach by rail is faster than sailing through Panama and up the East Coast. But, rail doesn’t carry as much as ships.” In fact, one 4,000 TEU ship carries the equivalent load of 16 trains. In the tradeoff between cost and time, Wainio speculates that high value time-sensitive goods will still use West Coast ports and that commodities will save money and choose the canal route.

Today’s challenge for the Port of Long Beach is overcoming an environmental bottleneck that is delaying infrastructure and terminal expansion. As spokesman Art Wong elaborates, “The EIR (environmental review) has to be approved before we can even vote on going forward,” with terminal and intermodal expansions.

West Coast ports, he points out, have some significant advantages over their East Coast counterparts, including proximity to the West Coast population centers, and reliable rail connections. Most notable, however, is the fact that three of the four U.S. ports deep enough to handle PPX ships are here. So, “If the East Coast can’t handle PPX, they’ll come here,” Wong says, noting that the Port of Long Beach can handle PPX ships up to 8,000 TEUs.

Intermodal

There may be a catch, though. “The increase in Asian imports—primarily from China—is forecast to exceed the capacity of the ports to handle it,” based on existing rail and road infrastructure, according to Rodolfo Sabonge, vice president of research and market analysis for the Panama Canal Authority.

Admittedly, the Panama Canal expansion “could shake up U.S. logistics, but that’s not a given,” Wainio says. Many factors are in play, including how the widening is handled, how tolls are adjusted, West Coast port growth, intermodal rail expansion and plans for ports and intermodal links from Mexico. The right choices, expanding the elements of the infrastructure, will enable U.S. channels to prevail. To fail, however, will cause severe dislocation.

The largest intermodal line in North America, BNSF, is expanding its major intermodal hubs in Dallas, Chicago, Kansas City and Memphis and is developing logistics parks—industrial parks built around intermodal hubs, “with a lot of land around them for further development,” Steve Branscum, BNSF vice president of consumer products, notes.

Union Pacific doesn’t expect any major repercussions from the expanded Panama Canal, according to Brian McDonald, Vice President, Intermodal Marketing and Sales. It’s expanding its facilities and tracks, with emphasis on double-tracking the Los Angeles to El Paso run and expanding intermodal hubs in San Antonio, Dallas, and Salt Lake.

BNSF’s Branscum predicts that no more than 35 percent of the freight coming from Asia to the U.S. will go through the Panama Canal. Right now, he explains, about 75 percent of the Asian imports come through the West Coast and are distributed throughout the West and Midwest. “It’s quicker to ship from the West Coast than to send goods through the Panama Canal to the East Coast and then ship backwards to interior markets,” he says.

A widened Panama Canal is just one of the shipping options, though. From Vietnam and points south and east, the Suez Canal route is shorter. Therefore, Robert West, managing director of global trade and transportation at Global Insights in Lexington, Massachusetts, suggests that value-added goods from India may choose that route to the U.S. East Coast, while goods from China may choose West Coast ports and intermodal shipping or choose the Panama Canal.

Another option being explored by some of the Chinese shipping lines and U.S intermodal operators, focuses on expanding Mexican ports and then developing rail lines north. This offers an alternative to southern Californian ports to relieve any bottlenecks. “If we can’t improve the throughput or productivity on the West Coast, there’s a real crunch coming,” one shipping executive said.

The port most often mentioned as a major entry point, Lazaro Cardenas, is a deep-water port about 1,000 miles from the U.S. border. Branscum discounts it as a serious option, though. “A port city, to be part of a core intermodal network, needs to be near a big market,” Branscum says, and the Mexican markets haven’t developed to that point. Right now, it handles less than 100,000 containers and is expanding to handle nearly 200,000 containers by 2017. In contrast, the ports of Los Angeles and Long Beach handled 15 million containers in 2006.

Transshipping

Although Post-Panamax ships certainly will use the expanded Panama Canal, there are some powerful economic reasons not to. Global Insight’s West points out that it’s not cost effective for PPX ships to make multiple ports of call. The result, he says, may be increased transshipping in the Caribbean, with a PPX ship traversing the canal for a major hub port and reloading there for the trip back through the canal. The potential transshipping benefit is increased backhaul and more efficient distribution.

Another possibility, raised by Panama, is the creation of a megaport at the western entrance of the canal. In the past decade, Sabonge says transshipped cargo has grown from about 250,000 TEUs to 3 million TEUs. The proposed megaport would increase that number by allowing PPX ships to off-load there. Construction costs are estimated at $600 million.

The great unknowns

The effects of the new lane of the Panama Canal on U.S. businesses depend on a lot of outside factors. The first two are that Asia will continue to be the source of most of America’s imports, and that the Panama Canal will be the most desirable route to the East Coast.

The third unknown is what the government of Panama will do to the toll structure, although Francisco Miguez, manager, contracts and administration division, ACP, points out that toll increases are set in consultation with the canal’s customers and that no increase is planned in the foreseeable future. “Long term, we’ll consider market conditions in the toll structure. The idea is to capture for the canal the value we provide and encourage commerce and vessel traffic to continue to increase,” Miguez says. Right now, the canal is debt-free, with $1.7 billion in revenues.

The timing, also, “is ambitious,” notes APL’s Sappio. “It’s an extremely large project for a small country like Panama. With projected costs running $5.25 billion “they have to get it done, on time, with minimal cost overruns and in a way that sends a message to the world that’s it’s been done properly.”  wt

Sidebar: Progress Update

In the year since Panama’s national referendum approved the expansion, financial and legal experts have been hired and requests for proposals have been issued in numerous areas. The first construction contract was this past July.

Expanding the Panama Canal is a huge project, “but it’s do-able,” notes Robert McMillan, chairman of the Panama Canal Commission until the 1999 handover. “I honestly believe Panama is trying to be above-board and transparent in what they’re doing,” he says.

Panama consistently has said the canal would be self-financing, but that really means the people of Panama won’t be stuck with the bill, Miguez explains.

“Funding hasn’t yet been arranged,” Miguez says, noting that the need for financing will come during the heavy construction phase scheduled for between 2010 and 2013 (financing is being coordinated by Japan’s Mizuho Corporate Bank, Ltd). Right now, Panama is evaluating options, including obtaining a credit rating for the ACP for the possibility of issuing bonds, he continues.

Trade in the Americas: The Conspiratorial Urban Legend of the Evil NAFTA Superhighway, by Clay Risen

The questions surprised even a presidential candidate as poised as Mitt Romney. A bespectacled, matronly woman at the back of the audience in Story City, Iowa, had heard news about an enormous highway being built between across the Midwest, linking Mexico and Canada.

“You can find it on the Internet, a Security and Prosperity Partnership that’s been working for a while to join the United States, Canada, and Mexico, and part of it is a NAFTA superhighway,” she explained.

She rejected Romney’s dismissal that the story was make-believe. “I don’t think they’re talking about it,” she retorted. Rather than argue, he offered a vague promise—“if they are building it, I’ll stop it”—and quickly took another question.

The “superhighway question” recurred often on the GOP campaign trail. Rudy Giuliani got it in Concord, New Hampshire. In Cedar Falls, Iowa, John McCain was asked what he knew about secret plans for a highway “to unite the three nations together.”

According to libertarian Rep. Ron Paul, a conservative Republican Congressman from Texas running for president (and a firm opponent of the superhighway), the plans to link Mexico, the United States and Canada by a monster highway will be the sleeper issue of the 2008 election. The Concord Monitor (New Hampshire) agrees: “The road comes up at town meetings second only to immigration policy.”

Reality is there’s no such highway in the works. “The U.S. government is not planning a NAFTA Super Highway,” reads a Commerce Department web page. “The U.S. government does not have the authority to designate any highway as a NAFTA Superhighway, nor has it sought such authority, nor is it planning to seek such authority.”

But that inconvenient fact hasn’t quelled populist unrest.

Riding well below the mainstream media’s radar, the highway is just one of the many real and imagined cross-border programs—the Security and Prosperity Partnership (real), the North American Union (imagined), the “amero” currency (also imagined)—to draw the attention of conspiracy-theory mongers over the past year. It is all over the right-wing blogosphere. And, it is the reigning issue in newsletters put out by fringe groups like the John Birch Society.

Asserted CNN host Lou Dobbs last year, “The Bush White House, supported by corporate America and special interests, [is] building a superhighway dividing this country, a superhighway that will run between Mexico and Canada.”

Politicians are stoking the flames. In January, Virginia GOP Rep. Virgil Goode introduced a bill—which quickly gained 27 co-sponsors—“expressing the sense of Congress that the United States should not engage in the construction of a North American Free Trade Agreement (NAFTA) Superhighway System or enter into a North American Union with Mexico and Canada.” Nor is this a partisan issue: In July the House approved, by an overwhelming 362-63 vote, a ban on funding for a “NAFTA superhighway.”

Most recently, Goode joined 21 fellow representatives in a letter to President George W. Bush warning of “serious and growing concern in the U.S. Congress about the so-called Security and Prosperity Partnership.”

Bush, speaking at a meeting with his Canadian and Mexican counterparts, laughed it off. “I’m amused by the difference between what actually takes place in the meetings and by what some are trying to say takes place,” he said. “It’s quite comical actually, to realize the difference between reality and what some people on TV are talking about.”

Such talk would be comical—superstates, evil corporations, a continental currency—if it weren’t also a potential threat to trade and economic growth. Tri-national trade has reached $700 billion annually, with the value of goods moving through the Laredo, Texas border crossing alone exceeding that of all goods coming from Great Britain. Economists predict those numbers will increase dramatically as U.S.-bound shipping moves from overburdened American ports to new and upgraded destinations along the Mexican and Canadian Pacific coasts.

Indeed, tri-national trade has tripled since the signing of NAFTA, but cross-border infrastructure spending has been nearly flat. “The entire U.S. economy is going to be more and more dependent on the strength of its multimodal system,” says Frank Conde, spokesman for the North America’s SuperCorridor Coalition (NASCO), an infrastructure advocacy group. That means more efficient border crossings, regulatory harmonization, and bigger and better infrastructure projects, which will take significant political and fiscal commitment at all levels of government.

So while it’s one thing for blogs and newsletters to hype the latest conspiracy theory, it’s a serious concern when politicians start listening, and advocate legislation to block needed government investments. “Everything they say about an NAU, the SPP, and a NAFTA superhighway are falsehoods,” says Conde. “The confusion caused by organizations like that harms our ability to improve trade links.”

At the precise moment when we need to be moving forward as quickly as possible on international infrastructure, the conspiracy theorists are threatening to push us backward.

This latest surge in conspiracy theorizing draws on a long-running thread in American culture.

“Historically, there has always been a feeling among some in the United States that we could be more secure and prosperous if we separated ourselves from the world,” notes Robert Pastor, director of the Center for North American Studies at American University.

Conspiracy theory mongering around NAFTA has been churning since President Bill Clinton signed the treaty in 1993, with the John Birch Society and other far-right groups declaring it a threat to American sovereignty and jobs. But a variety of trends have combined to both ramp up the volume and spread it closer to the mainstream.

The most obvious factor is a general turning away from free trade on both the right and the left. Populist politicians in both parties have lashed out at international trade deals as the product of undemocratic plutocrats and their allies in the federal government.

After her anti-superhighway bill passed in July, Ohio’s Mary Kaptur declared “a victory for openness in trade negotiations, highway safety, good wages, and fair trade policies. The grip of global corporations was loosened last night.”

As conservative commentator Phyllis Schlafly wrote in a recent syndicated column, “Now that the game plan is laid out, we can connect the dots: the North American Free Trade Agreement; the admission of Mexican trucks onto U.S. highways; the contract to build the TransTexas Corridor and the plans to extend it into a NAFTA Superhighway; making Kansas City an international ‘port’; the ‘totalization’ of illegal immigrants into the U.S. Social Security system; and the recently defeated Senate amnesty bill.”

Ironically, many free trade advocates say that when you look at the actual state of cross-border cooperation, the problem is not that we’re doing too much. It’s that we’re not doing enough.

Take the Security and Prosperity Partnership (SPP), an ongoing dialogue begun in 2005 and designed to coordinate cross-border regulatory and security policies.

While conspiracy theorists depict the SPP as a way to weaken American laws, in fact it has no authority to make any changes one way or another to the regulatory regime. “The SPP conforms with existing laws,” says David Bohigan, assistant secretary of commerce for market access and compliance. Instead, he says, the goal is to harmonize existing laws and regulations between countries.

Think of it as a matter of translation: Far from forcing everyone to learn Spanish, the SPP is like a Spanish-to-English dictionary, allowing English speakers to understand their neighbors without ditching their own language. A typical initiative under the framework calls for the three nations to “develop a common approach to standardize the regulatory measures taken in response to Phakopsora pachyrizi (soybean rust).” If this is a conspiracy theory, it’s hardly the stuff of aliens and x-files.

The SPP actually has a number of critics on the other side, people who say it does not go far enough in establishing a framework for discussion. “If there is anything wrong with the SPP, it is not secrecy, but the fact that it is a mishmash of disconnected and mostly trivial initiatives, lacking any organizing vision or direction,” wrote Roland Paris, a former Canadian foreign policy adviser, in the Toronto Globe and Mail.

“The SPP is an important initiative,” says Pastor. “My fear is that it is too timid and too fearful of criticism from the right.”

Wholly separate from the SPP are efforts to expand the transportation infrastructure that carries goods into and around the country. Rather than links in a conspiratorial plot, in fact they are uncoordinated, unrealized, and in most cases unlikely to be built.

First, there is North America’s SuperCorridor Coalition, a Dallas-based nonprofit. Despite its imposing name, NASCO is nothing more than an advocacy group for better use of current trade corridors, in particular the routes running from Mexico to Canada. “What we’re trying to do is push both the private sector and the public sector to maximize the efficiency and security of the existing transportation infrastructure,” says NASCO’s Conde.

Even NASCO admits that improving the efficiency of existing corridors is hardly a solution for the long term. Between now and 2025, Texas alone will see a 132 percent increase in traffic, with 260,465 trucks using its highways every day. In response, Texas Gov. Rick Perry has been pushing for what comes closest to an actual NAFTA superhighway: a new, 1,200-foot-wide toll road running from the Mexican border to Oklahoma, the centerpiece in a collection of projects known as the TransTexas Corridor (TTC).

Because the highway, estimated to take $180 billion and 50 years to build, would cut through numerous Texas communities and displace up to one million residents, the plan has drawn a fusillade of public criticism, particularly from farmers who stand to lose valuable land to the project.

Handing over infrastructure management to the foreign private sector is nothing new—French firms run numerous American water districts, and an Australian-Spanish joint venture manages the Chicago Skyway. Nevertheless, the possible role of foreign business in the TTC’s construction and operation has given an added twist to fears of a NAFTA superhighway.

Such opposition has already throttled Perry’s momentum toward approving the TTC, and observers say it looks increasingly unlikely that the project will get built.

The controversy over the “superhighway,” the SPP, the TTC and other efforts exposes a harsh truth about the future of the American economy. While free trade agreements and World Trade Organization negotiations are vital, the means by which trade actually occurs—or, increasingly, is impeded—are the everyday pieces of the continental transportation infrastructure: highways, rails, port terminals, and regulations.

And, while the United States has maintained a global leadership on writing and expanding trade deals, it has done a poor job of expanding its infrastructure to meet the demands of the resulting increases in cross-border trade.

All of which means that the more the conspiracy theorists on the Internet, in the media, and in government frame the issue on their terms, the less the country will be able to make the sorts of investments necessary to assure its long-term growth—and therefore the long-term prosperity of the continent, and the world. wt