Will the expanded Panama Canal hurt Los Angeles, Long Beach ports?

A $5.25u2009billion expansion of the Panama Canal opening this weekend will reverberate 3,000u2009miles away at the massive Los Angeles and Longu2009Beach ports complex, which for decades has been the best, fastest and cheapest route between Asia and the United States’ voracious consumer market.

Cargo containers from Asia filled with everything from teis shoes to computers now can take a direct, all-water route to Eastu2009Coast and southe ports, avoiding the trucks, distribution centers and trains necessary to transfer goods from L.A./Longu2009Beach to far-flung U.S. markets.

Even five years ago, there was fear that widening the Central American Panama Canal would upend the Westu2009Coast’s dominance in the Asian market and ripple throughout the local economy. But analysts now forecast a much milder impact, largely because of delays in port improvements elsewhere, changes to the shipping industry and the rise of megaships that won’t fit through even the enlarged canal.

Industry watchers say it’s too early to know the long-term effect on Southe Califoia — and the million jobs regionally from workers in warehouses sorting shipments to the hard-hats at the dock that go with it. But most agree if there is pain, it won’t be immediate.

“It’s something that is going to be felt gradually over time,” said Jock O’Coell, a trade adviser at Beacon Economics. “There is a general sense that the market share will be lost to Eastu2009Coast ports, but that has already been happening for a while. Whether that leads to a (long-term) decline, that’s another question.”

New routes open

The expanded Panamau2009Canal will now allow for vessels holding 5,000 to 14,000u2009containers to pass through its chael. Prior, only smaller cargo ships could squeeze through the narrow passage, making high-volume Asian shipments to the Eastu2009Coast difficult.

Even before the widening, the United States was the canal’s biggest customer, ahead of China, and will remain so after the expansion.

About 43u2009percent of the ships that dock in the twin ports are smaller, Panamax-size vessels that can hold up to 5,000u2009containers of products. And about 63u2009percent are the post-Panamax vessels that can carry up to 14,000 20-foot-long containers, enough to fill a few malls.

Longu2009Beach port officials, crunching numbers from the Marine Exchange of Southe Califoia, insist their facility remains an attractive option.

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Still, the canal’s online booking system showed 155u2009slots booked for the post-Panamax ships through the year, about 60u2009percent heading to the Atlantic, according to a report released this week by CBRE, a commercial real estate services company.

Local impact

Longu2009Beach and Losu2009Angeles have been bracing for this moment for years. Fears that armies of blue-collar workers could lose their jobs once dominated conversations about the Panamau2009Canal, but O’Coell said consolidation in the shipping industry and a push toward jumbo-size ships beyond 14,000u2009containers have eased fears.

“Soberer minds looked at the numbers and suggested the volume of containers diverted would be no more than 5u2009percent,” he said.

Others such as the Boston Consulting Group estimate up to 10u2009percent of Eastu2009Asia container traffic could be diverted by 2020.

Both ports here expect a minimal impact. In Losu2009Angeles, officials said that even if they lose some business, an increase in overall goods could easily make up for the loss.

“We do not expect to see a major shift in cargo,” said Michael Keenan, director of plaing and strategy at the Port of Losu2009Angeles. “We are not afraid either; we are here working on our plan.”

More competition

Meantime, easte and southe ports have been shelling out billions to lure new business and accommodate hulking ships that will come via the canal.

In Savaah, Georgia, a $706u2009million effort is underway to dredge the waterways used by cargo ships. The Port Authority of Newu2009York and New Jersey will invest $1.3u2009billion to raise a bridge for the new, larger ships. Still, despite these efforts, only a handful of ports along the Easte Seaboard are ready for a new crop of ships. Even if they are prepared, a recent Newu2009York Times article has raised questions about the construction, safety and ability of the Panamau2009Canal to deliver on its promises.

In Houston, authorities say they have spent $314u2009million this year on capital improvements. But their bigger selling point? Houston’s port chief commercial officer, Ricky Kunz, told the local public radio station that unlike the West Coast, there’s no labor strife in the South. Along the Eastu2009Coast and Gulf, dockworkers pushed up contract negotiations to avoid disputes.

A bitter labor battle at the Losu2009Angeles and Longu2009Beach ports led to a 10-day lockout in 2002 that cost the region $1u2009billion a day. It was a wake-up call for the logistics industry, which moved away from relying on the region and created a so-called four-point strategy pushing product shipment to other parts of the United States.

Further marring the Westu2009Coast reputation was a 2015u2009dispute that caused monthslong congestion problems, leaving dozens of ships at a time moored out at sea waiting to enter the harbor. Understandably, such instability makes shippers leery of the West Coast.

Megaships

But megaships may be the biggest development in the industry, and the Westu2009Coast has a significant edge. With the consolidation of global carriers, the industry is shifting its focus to cost-saving jumbo ships that can hold up to 21,000u2009containers, which the Panamau2009Canal can’t handle. Those vessels still make up only a sliver of the market, but the twin ports are betting on this next wave of mega-vessels.

Losu2009Angeles got its first glimpse of such a ship in December when the behemoth CMA CGM Benjamin Franklin — with its on-board swimming pool, chef and waste-recycling system — slipped into harbor at dawn on its maiden voyage from China, where it was built.

Longu2009Beach and Losu2009Angeles are investing more than $7u2009billion in a plan to make room for this generation of cargo giants.

Construction workers on sky-high cranes can be seen by commuters along the Gerald Desmond Bridge crossing from Longu2009Beach to Sanu2009Pedro. The bridge project will provide more clearance for taller ships and is part of a scramble to be ahead of the curve with dredging and an expansion of capacity.

Other improvements include a $1.2u2009billion upgrading of two harbors to create a single, more automated port that can handle ships carrying 22,000u2009containers. The Longu2009Beach Middle Harbor Project is set to be fully online by 2020.

“The new generation of ships coming out is larger than what the Panamau2009Canal can handle,” said John Husing, a chief economist for the Inlandu2009Empire Economic Partnership. “The ports of Losu2009Angeles and Longu2009Beach have the competitive advantage.”

Analysts at Alphaliner report only 9u2009percent of the world’s container fleet holds capacity for 13,000u2009containers or more, yet more than 50u2009percent of new ships on order fall into that category.

Panama ceremony

That’s not worrying Longu2009Beach Harbor Commission President Lori A Guzman, who will be at the canal’s inauguration — a ceremony that will include a “who’s who” of the shipping and political world.

“When you put this into proper perspective, it’s an event of historic significance to the global trade industry,” Guzman said.

Panama authorities invited 70u2009heads of state. Califoia Assembly Speaker Anthony Rendon, D-Lakewood, and three other state legislators are scheduled to head south, as is a delegation of six officials from the Longu2009Beach port.

“We really wanted to be boots on the ground and hear what (Panama officials) are touting will be their competitive advantage so we can understand our own marketing strategies” Guzman said. “In the United States, we remain the most competitive in terms of cost to time.”

It still takes 10u2009extra days — and added fuel costs — to ship to the Eastu2009Coast, she said.

“Our focus has been to be big-ship ready.”

More products

For now, whether distributors and big retailers like Wal-Mart and Home Depot will decide to bypass the twin ports and send the cargo containers to the East and South depends on three factors: cost, speed and reliability.

“You have a number of importers that are building new distribution centers on the Eastu2009Coast,” said Jonathan Gold, a supply chain expert at the nation’s largest retail industry trade group, the National Retail Federation. “The canal is playing into some of that.”

In the Inland Empire, where many of the cargo containers get unloaded and sorted at expansive distribution centers, there is no evidence of a global trade shift.

“Right now, there is 20u2009million square feet of distribution center under construction, just in the inland alone,” said Husing of the Inland Empire Economic Partnership. “The ports of Losu2009Angeles and Longu2009Beach have the competitive advantage because they can handle big ships.

“The feeling is that the Eastu2009Coast is not yet set up to handle them. If something arrives, it can move across the country quickly (from here),” he said.

Losu2009Angeles port plaer Keenan said that while everyone is focused on Panama, he is worried about other competitors, such as the port at Prince Rupert in Canada, which is making strong overtures to Midwest markets with bargain rates.

“We look at Panama as just one of the competitive threats.”