Updated 11 months ago
You've said you believe the current expansion of the Panama Canal will have a greater impact than the opening of the canal originally in 1914. Could you elaborate, both from the global perspective and that of Florida
If you go back almost 100 years since the opening of the canal, what was the world like? Trade was limited. Trade was more regional - it wasn't global. And it was tiny compared to what trade amounts to today. So you have this huge, inter-related network of international trade now that you didn't have back then. When the canal was built and first opened, trade was much less important to the United States and to the world than it is today. U.S. trade was not with the Pacific area. The U.S. traded mainly with Europe, with this Hemisphere and with itself.
Lots of intercoastal trade. Huge amounts of oil were pumped in California. You had lots of oil and other intercoastal U.S. trade. So what the canal did when it was first built, it served, essentially, the United States. It didn't serve the world. Fundamentally it was U.S.-trade dominated; that trade was relatively small; and it consisted primarily of inter?coastal movements , and U.S. trade with countries like Chile for specialized materials, mainly raw materials from the east and west coasts of South America like nitrates and copper. So you've had raw materials coming up from South America and U.S. intercoastal trade and there wasn't much else.
The Canal was really built more for strategic reasons, geo-political reasons, more than economics and trade. Trade through the canal post-1914 actually didn't increase much at all in the first decade or so, started to grow in the ‘20s and then the Great Depression hit. So the canal just muddled along without a lot of growth and then World War II came, and it served a significant strategic purpose in World War II. But economically the world was in a different situation as that war progressed.
So you really didn't start to see the benefits of having a Panama Canal in a global sense and in a very large economic sense until after 1950. The economic miracle in Japan kicked in, and U.S. trade started to shift to the Pacific. From the early '50s, trade through the Panama Canal just mushroomed because of U.S. East Coast/Asian trade or what we call trans-Pacific trade. That occurred in the 50s and 60s and it's still occurring today with the Chinese coming on in the last decade so strongly.
So the opening of the Canal didn't fundamentally alter world trade patterns. Now, the expansion of the Panama Canal is going to cause a significant, fundamental change to the maritime industry. It will open up opportunities that didn't exist before for the massive amount of trade that now moves globally, to and from the United States.
What are the most important opportunities that it will open up in terms of Florida
The expansion of the canal is being done for two reasons. One is the need for additional canal capacity and the other is to allow the transit of post-Panamax vessels. Growth in trade and the increasing number of large ships, and, what I mean by large ships are ones that can presently transit the Panama Canal, have pushed current canal capacity right to the limits. Over the next few years, before they get the new lane in service, you're going to see increasing delays in the canal and more problems being able to accommodate the demand for transit through that waterway. That opens up windows of opportunities for other alternatives that are either already out there or are expanding, or some of the new alternatives coming online, such as routing patterns through western Canada by rail to Chicago. That new system is now in place. Mexico is also working hard to expand its ports and rail connections. Suez is already out there as an option for some, but it really is a limited option for most of what goes through the canal. The west coast U.S. ports, which handle the largest component of Pacific-East coast trade movement, are trying to increase productivity and expand their capacity to accommodate some of the growth, but they have real limitations.
Looking ahead of course, specifically in the container market, the industry is building more and more of the giant container ships too large to go through the present waterway, ships bigger than what we call Panamax. They have large numbers of them on order and under construction. The canal understands from its forecast that the primary growth sector of their business is the container market, so they need to be able to handle those very large ships or they're going to lose business to alternatives.
Most containers now bound for the eastern U.S. come in through the west. Will that definitely change after the expansion of the canal? Will we now see most of the containers bound for the east coming into the East?
Most being more than half? Yes
Can you talk about the impact on Florida
Over the next few years (the Panama Canal) will likely reach full capacity. They can't catch much more market share than it already has now. If you simply say, collectively, canal market share versus all alternative market share, the canal will probably lose some market share over the next 8 years leading up to the opening of new locks because you not only have the west coast alternative, the Mexican development, Canadian development and the Suez as options. Post-2015, then you’ll see the pendulum come back to Panama very rapidly because organizations will be positioning themselves to quickly begin using the canal once they see that new lane of locks is working and working well. We saw a pattern like this in the '70s.
When I started working at the Canal in 1975, the Canal was going through a boom because all the biggest container ships were going through Panama from Europe to Asia because the Suez closed after the '68 war until 1975. So for that period, all that Europe-Asia traffic was going through Panama. We were just rolling in the ships and the money. Then Suez got back online but there was hesitation because there were still thoughts that there might be mines or unexploded ordinance, and insurance companies were putting high premiums on insurance. About a year after Suez opened, you still saw everything coming through Panama. A couple of big market leaders started running their ships through Suez (Trio and Scanstar).
Once they started running Europe/Asia, all the other companies that should've been on that route anyway under normal circumstances quickly diverted. Literally overnight, the canal lost 800 transits to Suez and a very large chunk of our revenue that we never should've had. We only had it because of the war. To some extent you'll see that kind of thing happen. 2015, you announce that the new lane is open, it's not like all these giant ships are going to be lined up waiting to use Panama.
It will take a little bit of time to start to see things change. Within in a period of time, you will start to see the market leaders taking steps to shift big ships to the Panama route and others will follow suit. Within a year or two, you will see the Panama market share go up geometrically. It will jump up to over 50% - that could be conservative. That depends on a couple of things. One issue is how successful Mexico is because right now the jury is still out on whether the Mexican intermodal systems into the U.S. Midwest are going to develop to the full extent that they could.
How aggressively is Mexico working on its systems?
Pretty aggressively. They are putting a lot of money into the three or four major port developments. They're working on the rail, but there are border crossing issues and security issues that might place some limitations on what they can do. Quite literally, if you could just open up the border and just let those trains roar through, then Mexico could become a very significant intermodal operation. So, it's not a given that Panama will get all of the Asia/US East Coast trade or even most of it. I think that's why the Panama Canal management is quite properly being a little cautious. When they say they should get about 50% of the market, it's because of some of these unknowns.
So, say they get 50%?
Well it's 50% of a much larger pie. The argument would be that even if Mexico grows into a much better and larger system, even if the Canadian system works, even if west coast ports are able to expand somewhat, and we know there are real limitations there to what they can do, the market itself will be so large that you're going to see a lot more business coming through the Panama Canal. Keep in mind when we talk about doubling (container traffic), we're talking about doubling container moves from all sources around the globe into the East and Gulf ports. In terms of your capacity needs in the East and Gulf coast, what comes through Panama is only a part of it. Some ports get more from Europe. Of course we know people argue [that] 10 years from now, how much of the trade will be with some of these up-and-coming countries? (India, Brazil, et. al.). It doesn't matter to us. We don't care where it comes from-the cargo is still coming.
So it's coming, but do you think the doubling figure is overblown?
One of the first things I learned as a junior economist, something one of my mentors passed onto me: Give them numbers, give them dates, never give them both. When you look back in time, international trade now has basically grown every year since 1950. We've gone through 50 years of growth. That growth is not going to stop. It's going to slow, and it is slowing right now. Even as we come through this current downturn in the U.S. economy, I don't think you're going to have a return in the next few years to the double digit container growth we've seen in the last five or ten years.
So what does that do?
That simply shifts you further out on the curve. It shifts the time. It doesn't mean you're not going to double. All the indicators are that you will continue to see a pattern of growth; you do the rule of 72 where you divide percentages into 72 and it tells you when it's going to double. If its six percent growth, then in 12 years you'll double. If you're talking big numbers, which we are - magnitude of trade is large. When I was doing forecasts for the Panama Canal in the 80s and 90s, I'd go to the Canal board and I'd tell them we're going to get 2% sustained growth over time, maybe 2-3% growth long term. Do you know what 2% growth will do to you when you're moving 200 million tons of cargo? Even if it's 2% a year, in 10 years you've got a big number you've got to deal with. That's what we're talking about. You're going to have pretty substantial growth in percentage terms on a very large base of cargo. Not double digit but maybe 5 or 6 percent growth. That would be lower than what many people are projecting. Most of the numbers from Global Insight are like 6-7% over the next decade or so. Don't know if that will occur or not, but I'm a little skeptical that that kind of growth can continue long term.
What about U.S. consumption?
U.S. consumption is an issue. How long can we continue this unchecked demand for all the garbage in the world? More and more toys and many other none essential items. Quite frankly there are limitations there too. So I think U.S. demand will become more balanced and reasonable over time for a lot of reasons. I think that international trade growth will slow but you will have growth, and trade growth will be significant. And so ten years down the road you're going to be dealing with very large numbers and very large new market opportunities when the canal can handle that kind of business with the largest ships.
Let's just say 10 years down the road we're going to be looking at that 50% of the market a couple of years after they open. At that time, you also won't see all that cargo moving on those giant ships. The type and size of ships is impacted by a lot of things: primarily trade route, type of cargo and volume of cargo, and you build the ship to meet those three factors. Rule of thumb: if it's a longer trade route and the volume is great like the Pacific, then you're going to see the big ships. Europe/Asia trade route is like that. But that again is only a portion of the trade coming into the Gulf and Eastern U.S. What comes in from Europe on a shorter trade route, what comes in from Brazil from Latin America, the Caribbean, Mexico and all around the region for the most part won't be coming in on these giant post Panamax vessels.The large vessels are built for and are probably going to operate essentially on those two or three long-haul global trade routes. So, there are opportunities here for all ports. It's not limited to just those ports that deepen to 45 to 50 feet and have the local market that can sustain and handle these giant ships that bring in millions of containers. In fact, only a few U.S. ports are in that situation.
So what will our ports look like 10 years down the road?
If you're looking out ten years, even if you argued that some of the Florida ports ought to be able to handle these giant ships, I don't think they will be there in ten years. Nobody is dredging now to 45 or 50 feet. Jacksonville wants to. Miami is the only one that's even authorized at this point to 50 feet. Jacksonville and the Everglades are both trying to authorize the deeper channels. Jacksonville is struggling to get to 40 feet, and they have other issues. Jacksonville will get through these issues, and I think they will develop into a significant container port, but when are they going to have 50 feet of water? When are they going to be able to handle ships of the size we're talking about? I don't envision it anytime soon.
How should Florida strategically be preparing and are we planning strategically?
No. Certainly, some people would argue that yes we do plan strategically through the Florida Port Council and working with FDOT. These organizations are moving in that direction, they're doing more. But at this point, that effort is really just beginning to take root. Even here in Tampa, everyone is getting on the bandwagon now with the need for regional planning. But have you heard anybody say statewide planning? I haven't really heard anybody say that. Right now, if you talk to people, they basically would talk on a regional basis. From the port perspective, we have three major regions: South Florida, Northeast Florida and West-Central Florida. So basically it's Miami and Everglades serving south Florida, Jacksonville serving one and Tampa serving the other. Then you have other smaller ports scattered around that also have a purpose and a niche to serve. Right now port development is being looked at more in that regional sense, that we need big capability in the south, in the northeast and in the west side as well. You're really talking four major ports. Would it be nice if all four ports were sitting there with deep natural harbors or at least with harbors that they could easily and cost-effectively dredge to 50 feet? That would be great.
Would it be nice if they all had enough land for expansion and would it be nice if they all had the connectors required to move that cargo out of the port and into the hinterlands? Yes. But you get more realistic when you start talking about the actual costs of accomplishing this and the availability of the funds. The ports have to have a leadership role in this, but they need to work with others in the state to try to come to grips with those kinds of issues. What do you really need in terms of ability to move cargo, in terms of overall capacity, in terms of the nature of that capacity? One smaller port, maybe its niche is to serve particular cargos coming in on ships that only draw 30-35 feet of water. We have areas of this port for example, Port Red Wing, and the Big Bend Channel where I would love to have the channel at 40 feet. It would give me greater flexibility to market that area. But if you asked me right now do you actually have a customer on the horizon that needs 40 feet? I would have to say no I don't. It would be nice to have. I'm in the driver's seat if I have it. But it comes down to timing and chicken and the egg and cost.
What are the incremental gains that you get from this? I looked at Port Red Wing and right now, although I'd love to have 40 feet of water, all I really need is 34 because that's the particular market I'm after. Yes, over time I think we need at least 40 feet throughout Tampa. Do we need 50? I don't believe so. Right now, there's a number of reasons why we don't need it. One is the marketplace, the geography and location. We're in the Gulf - what kind of business is going to come into the Gulf and what are other Gulf ports doing? Not just Tampa, but Houston, Mobile, New Orleans. Houston is at 45’, and I don't think they have any plans to go to 50 feet. If Houston doesn't go to 50 feet, you're not going to see a mega ship come sailing into Tampa or enough mega ships to make a billion-dollar deepening to 50 feet worthwhile.
So is it a mistake for us taxpayers to be dredging the Port of Miami channel to 50 feet?
Anybody who looks at it objectively, at Everglades and Miami, they're going to say where are you going to get the biggest bang for your buck? Which port is capable of expanding land-wise, capacity-wise, and which one can expand at the most reasonable cost? Deepening a channel is only a piece of it. Where are you trying to move the cargo anyway? What market are you going to serve? Miami is unfortunately further south than the Everglades, and both of them sit at the end of an appendage that's hundreds and hundreds of miles away from the large population centers up in the Southeast, if you're talking Atlanta or further north. So are those ports going to be entry points for intermodal movement going north on rail in the kind of volume that would support the investment you have to make to accommodate those giant ships? Miami essentially serves the South Florida marketplace. Is the market going to grow and develop beyond what it is today? Yes, but with some limitations. We know the growth is moving north now to Palm Beach, Orlando. What's the size of the market they're going to serve 10 years from now relative to what it is today? I don't think their market, geographically, is going to change. I think it could change population-wise and in terms of buying power. Some would say, well if they could bring those big ships into Miami then you could once again become a larger transshipment port and move cargo back to Latin America. But if you have that transshipment capability in Panama and the Caribbean, with the ships going through there first, does it make sense for that ship to sail another 1,500 miles north before the cargo is offloaded and then shipped back? Most of the transshipment stopped years ago for just that reason.
You said Florida's ports need to work with partners and FDOT. Could you elaborate on that in terms of our highway and rail capacity? You said inside the state, infrastructure capacity is a huge problem-maybe even more of a problem than the port capacity. Regardless of what the ports are doing, will our highways be able to handle the truck traffic, rail and people traffic?
No not efficiently unless much more is done. That's really an FDOT question, but I think they've answered it. Even if you have growth in truck traffic, that’s relatively modest, combined with the expected growth of he population, on top of what's already a problem we are faced with major congestion problems. We have serious congestion problems right now throughout the state-certainly in south Florida. Miami particularly has huge problems. Tampa's problem is getting worse.
Yet FDOT lost money again this legislative session. We have a crisis with the federal highway funding because of the gas tax. What should Florida do?
In the end, the lawmakers are responding to pressures from the voters - concerns over taxes, gasoline prices, etc. Most people take a very short term view of their financial situation. If they can't pay for gas today, then that's the immediate crisis. There has to be a concerted effort to educate the people of Florida to the overwhelming importance of having good infrastructure. If you think your problems are bad now - if taxes continue to be reduced, if funding gets cut for all these important infrastructural projects - we're all going to suffer immensely in the out years. Maybe we'll have a little more spending in our pocket in the next year or two, but that short term view is not just a Florida problem, it's a national problem. The state has to do a better job of educating just how significant ports are to future economic growth and development of this state. We've been out there trying to convince them that investments in ports over time bring a huge payback - far exceeding the public money that they're putting into it.
Is there an industry standard?
Whether it's 7-1, 5-1 or 4-1, it's still a significant positive benefit, greater than you're going to find in most investments. Those other things you're investing in aren't going to function if you don't have the transportation infrastructures to serve it. It's nice to say the phosphate fertilizer industry is important and brings a lot of economic benefits, but it is directly related to the existence of a port. Practically everything in Florida is linked, one way or another, to the highway and port infrastructure system. Absent the kind of investment you need to make in that critical infrastructure, will you get your goods? Yes, but they'll be railed or trucked in from a thousand miles away, or three thousand miles away as they are in many respects. If you have greater capability at your ports and you have the expanded Panama Canal, you're going to get the economies of scale from that very large ship bringing that cargo almost to the marketplace itself. The idea of developing the regional port capability is that if you can bring more of this business directly into Florida, you eliminate costly truck and rail moves and all the benefits that flow from that - less maintenance on highways, less cost, less pollution. The benefits of minimizing your distances and transportation requirements are just tremendous. You have less congestion, less pollution not just from trucks but from cars because you don't have to sit in traffic. It enhances all these service industries that don't even handle cargo because their employees get to work faster and fresher if you don't have the congestion. Infrastructure has been the key to growth and development of this country for over 200 years, whether it was river, interstate highway or rail systems. Everybody knows if you don't have it, then your country's not going to grow. We need to educate people to that and get them to understand that you can't constantly cut taxes. We can't take that short-term view. If we do, you're all going to pay a tremendous price later. Most people see the government as inefficient with their money. Part of the education process is regaining their confidence - that you do have your priorities straight and a strategic plan and you have identified those critical infrastructure needs. You're not just frivolously doing things, playing political football.
Can you talk about the role of public and private partnerships? To what extent can private industry help on the port side too?
There's lots of private sector activities - most of what goes on at this port is private sector. For every dollar this port authority spends, there's probably $10 to $20 spent by the private sector in the Tampa maritime community. When we do a deal to rent a piece of land and we contribute some money for dredging, or participate in the berth or some of the infrastructure, they do all the upland improvements. So we put in $5 million or $10 million, the company puts in $20 to $40 million. So we already have these kinds of partnerships in many, many arenas.
Some ports hire a terminal operator to be just that-all they do is move the cargo on and off and collect the revenue. That's what was being done here some years ago. Ports of America came to us and said they wanted to be a partner - we'll operate everything but we'll also invest. The first thing they did was buy our cranes from us for $5 million and picked up the $1 million a year in maintenance costs. They are also committed to replacing them and augmenting them - they do it all. We also have an agreement on expansion of the facility that we will split those costs 50/50.
Can they extend the use of private sector participation into the highway system?
It's been successful elsewhere outside of the United States. I was at an event two or three years ago, and I got a kick out of this senator who stood up and gave a talk about this new idea of getting private sector companies involved. Nearly every highway that's been built in Panama in the last 40 years was built by private sector people who own and operate them. The U.S. is light years behind the world when it comes to that approach.
How does it work in Panama Does it work well?
First of all, in a country like that, you couldn't get it done effectively any other way. The (Panama) government is broke, so they can only build things if they get private sector participation or they get grants from the World Bank. They have done different types of things with private partners: trade-off, in-kind agreements. So it ranges from you built it so you can operate the toll booth to contributing a little bit of money or providing development rights. It works. They do it all over the Third World. Here we haven't had to do that in the past. We've found it more efficient to use taxpayers' money to do it. I don't think that model should be totally changed. It needs to be tweaked. I think private-sector participation is needed, but it needs to be limited. There's probably specific projects, whether it is the Miami tunnel or a cross-state connector of some kind, where that approach could be useful. But I think they have to approach it cautiously.
How about the rail system here in Central Florida in terms of being able to move your containers without trucks? Is that going to be a possibility?
The U.S. intermodal system works so well because you're moving trains 2,000 miles across the country. So it depends where your market is. But we're talking about getting those containers to come into our ports...close to the market, so truck moves will be essential for that last little piece. By doing that, you remove the long-haul trucks so you're no longer moving from the Atlanta railhead by truck down I-75. You just simply run it 20 miles over from Tampa to I-4. Rail, in that context, plays a very limited role for freight movement. I do see great benefits from light rail systems moving people and cars off roads. The other element of this freight movement is that the logistics center in Winter Haven wouldn't be serving the Port of Tampa directly; it would be serving the state by bringing more of the containers in on rail from out of state and eliminating those long haul truck movements. That rail system would, in a sense, serve the same purpose that a regional port does. Either way you end up with that short truck move and the economies of scale from either the large vessel or the train. I think effective transportation systems in the state and anywhere have to be a mix of the appropriate modes. It's a system, and they need to look at all those component parts. It's a strategic building exercise. It's often a tendency for each group to focus on what they perceive to be their own area of responsibility. I think you do have to look at it in terms of a broader transportation plan. All these modes play an important role in solving problems we're all faced with.
The Army Corps is a big source of complaint in your industry. Are they in this conversation?
Absolutely. The Corps obviously has a major role and it's not just keeping main channels in the ports. They have roles in all the intercoastal movements, inland waterways. They play a role in any transportation study. But, the Corps needs to reorganize and overhaul a lot of their internal processes. Our issues haven't been with the state or local Corps representatives, because they understand what our needs are and the projects. But they operate within a set of very complex rules that often get interpreted differently by people higher up the chain and priorities often get set beyond the state of Florida. It starts with our leadership in Washington. This country's problems are not economic. We're the strongest economy on the globe and we will remain so as long as we have decent leadership in Washington. Our problem has been political - with political structures. In many cases, they don't meet the needs of the rapidly changing modern world. Washington needs to take the lead in streamlining these processes.
What haven't I asked you that would be key to the statewide perspective of the Panama Canal expansion?
I'm a port director for the Port of Tampa but this is by various measures the largest port in the state and we serve all west-central Florida. I want to do what's good for Tampa and this region, but I do view what we do in the context of the greater good for the state of Florida. We have four large ports that are going to continue to play a very significant role in this state. We have a handful of smaller ports that are important and will grow, but I do think we need to look in terms of how they grow and develop not in isolation but in terms of the statewide need. Although there are investments that we need to make in ports, when you look at the system there are many other infrastructure needs and we're only as strong as our weakest link. I think our connector problems are quite possibly one of the more difficult issues to deal with outside of the ports. The state needs to continue to support that effort and make sure sufficient funds are available.