By George Cunningham
For several years anticipation of the opening of an expanded Panama Canal has been driving the agenda of U.S. ports on the East, Gulf, and West coast. The expanded canal - capable of handling the mega-ships plying the oceans today - is expected to open in 2014 and East and Gulf Coast ports have been looking for ways to exploit the possibilities. West Coast ports, on the other hand, are looking at the opening of the canal as a threat to their market share and to West Coast dominance of the transpacific trade.

Port officials on all three coasts see the canal as a "game changer," which it is, but what the actual impact of the canal will be on port fortunes remains to be seen. What has changed is that there is now competition. The impact of the canal opening on the east, west and south will depend in great part on how the West Coast ports react.

The West Coast ports may no longer have a lock on the transpacific business - some of that business has already slipped away because of well-publicized instances of gridlock and labor disputes. But the West Coast ports will still have a competitive edge when it comes to keeping the ships calling there and the cargo flowing.

West Coast ports have fast rail connections to the east - considerably faster than going south to Panama, transiting the canal, and then steaming back north to the East Coast. Although ships ton-for-ton and mile-for-mile offer the most environmentally friendly way to transport cargo, the greater distances involved with a ship using the all-water route through the Panama Canal erodes much of that advantage. A look at the map shows why.

The Atlantic side of the Panama Canal is due south of the Port of Charleston. That means that in order to service ports in Florida or the Gulf, the vessel not only has to go south and east to Panama, but then back north and west to ports such as Tampa, New Orleans, or Houston.

The current practice of slow-steaming will only magnify that time difference. There may be some low-value cargo for which time is not an issue, but much of that is already using the canal.

The West Coast, on the other hand, has deep water, convenient rail connections, and surplus port capacity - at least for the time being. The necessary infrastructure is in place, and updated and expanded facilities are in the planning and development stages. A support system of warehouses and distribution centers is also in place, both in California and the Pacific Northwest, allowing importers to transload the cargo to domestic containers and make more timely decisions on its final destination. The Inland Empire - about 50 miles northeast of the Port of Los Angeles and Port of Long Beach - has more than 410 million square feet of warehouse and distribution center space.

The Port of Seattle and the Port of Tacoma are both closer to Asia than the California ports, but since the regional population base is relatively small, most of the cargo handled is discretionary - which means it is up for grabs. The Pacific Northwest is already promoting themselves as the "we're-not-California" gateways with Seattle even taking out ads touting its lack of Southern California-style fees.

The 20 million people residing in the Southern California region ensure that the Los Angeles and Long Beach ports will remain the dominant gateways on the West Coast. Along with cargo aimed at the regional market comes discretionary cargo headed for destinations west of the Rockies. Because of its rail connections and distribution facilities, Southern California has been able to attract and handle much of that discretionary cargo despite factors such as state and local politics, regulatory uncertainty, and a history of gridlock that tend to discourage it.

The Port of Oakland shares the problems of both the Pacific Northwest and Southern California. The port is the gateway of choice, however, for the agricultural exports coming from the Central Valley, and the population base of the Bay Area and Central Valley continues to grow and attract cargo there.

Expansion of the Panama Canal - financed through bonds - is expected to cost about $5.25 billion. That means the tolls to use the canal - figured on a per-ship basis - will have to be raised. How much? That is yet to be determined.

In addition, the East Coast ports will have to invest in dredging - a time-consuming process to get approved and funded - and expanded infrastructure in order to lure substantial cargo from the West Coast. But with almost 60 percent of Americans living east of the Mississippi River, the East and Gulf ports are closer to consumers and businesses. Once the cargo arrives, it will be closer to where it needs to go. And East and Gulf Coast ports are also seen as more business-friendly, more efficient and cheaper than their competition in the West.

The big question is will the West Coast - especially the California ports - use their competitive edge to compete in the marketplace or as a hammer in an attempt to beat their customers into submitting to their political and environmental goals?

The jury is still out.

-- The Cunningham Report