True wisdom comes to each of us when we realize how little we understand about life, ourselves, and the world around us.
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Arizona derives a big economic impact from its proximity to the ports of Los Angeles and Long Beach, which dominate container trade with Asia. A wider, deeper Panama Canal could disrupt some of that.
For the past few years, ports from New York to Miami have been busy dredging their harbors, improving rail and highway connections, building tunnels, raising bridges and pursuing other projects to make them suitable for larger ships.
Each craneful of silt scraped from harbor bottoms raises the possibility that these Eastern cities could siphon foreign trade away from West Coast ports, much of which flows across Arizona by truck or railroad.
It’s all part of the preparation for the Panama Canal expansion, a $5.25 billion project that will add a third set of locks and deepen the 100-year-old waterway so it can handle ever-larger modern cargo ships. The project, which is running behind schedule but on pace to wrap up in 2015, could open up trade routes and shake up global commerce.
“The proposed expansion of the Panama Canal will have significant impacts on shipping routes, port development, cargo distribution” and other maritime issues, stated a report by the U.S. Army Corps of Engineers.
The biggest expected impact: More big vessels will be able to make the trip directly to or from China, Japan and other Asian nations through the canal, straight to cities up and down the U.S. East Coast and along the Gulf of Mexico. West Coast ports, especially the California twins of Los Angeles and Long Beach, currently control about 70 percent of the Asian trade.
Landlocked Arizona has a stake in the competition. What happens in Los Angeles and Long Beach affects jobs and taxes in Arizona, and much more.It also influences the state’s need for railroad yards, highways and warehouse development, along with traffic congestion and air pollution.
Not only do much of Arizona’s imports and exports flow through the West Coast, Arizona also is the site of several major trucking and rail routes connecting Los Angeles and Long Beach to states farther east and north.
Arizona’s ties to ports
In many ways, California is Arizona’s door to the world at large, with expanding trade with Asia a focal point.
Exports from Arizona through the two ports approximate $934 million a year, account for 18,000 jobs and generate nearly $47 million annually in state and local taxes, according to a 2012 report by BST Associates. BST used 2011 data and looked only at shipments packaged inside metal containers.
That placed Arizona sixth among the states in export-related employment tied to the Southern California ports, which specialize in container traffic.
Phoenix truckers Swift Transportation and Knight Transportation service the ports, with Swift starting out four decades ago importing steel to Arizona and exporting cotton from Arizona through Southern California.
Meanwhile, retailers including Amazon, Target, Walmart and Home Depot have built large warehouses, mostly in the West Valley, for imports.
Thousands of Arizona jobs in wholesale and retail are supported by foreign-made goods brought in through the Los Angeles County ports, according to the study, which was prepared for the two ports and the Alameda Corridor Transportation Authority, which coordinates rail traffic in the vicinity.
“We look at these ports in Southern California as our gateway to global markets,” said John Halikowski, director of the Arizona Department of Transportation.
Arizona sits in the middle of a large and expanding trade triangle connecting Southern California, Texas and northern Mexico, he said. North-south trade with Mexico and Canada is a major initiative for the state and gets substantial attention; commerce flowing east and west across the state is substantially larger but gets less publicity.
Commercial trucks make about 8 million crossings into and out of Arizona each year, according to ADOT, with most on east-west interstate routes. ADOT enforcement officers inspect or otherwise contact more than 4 million trucks on the interstates.
Transit times favor West
Eastern cities that have invested in dredging and infrastructure improvements tied to the canal expansion hope to wrest commerce from Southern California and, by extension, Arizona.
“There will be a significant amount of additional shipments that will come to the East Coast, rather than go to the West Coast,” Florida Gov. Rick Scott told NPR last November. “By investing now, we have the opportunity to get companies to expand here, grow here.”
But the two Los Angeles County ports also have made investments and already are deep enough to handle increasingly massive ships that benefit from economies of scale.
If the Eastern rivals boost their share of Asian trade, it will be gradual.
“It takes time to change trade routes,” said Arnold Maltz, professor of supply-chain management at the W.P. Carey School of Business at Arizona State University. He sees minimal impact for Arizonafrom the canal project, at least over the short term.
The ports of Los Angeles and Long Beach arealready tied into roads, rail lines, distribution centers and other links, making them capable of handling bigger ships and more trade. Los Angeles and Long Beach also are deep enough to handle almost anything afloat, and capacity pressures there, including congestion, have eased with the global economic slowdown over the past half-dozen years.
Arizona also has made investments tied to port commerce. These include acres of warehouses in the West Valley along Interstate 10, especially from 35th Avenue to Buckeye. These buildings, less than a day’s drive from the ports, offer an alternative to the congestion of California, with less-expensive labor and less-onerous regulations.
Most of U.S. in reach
Even after a bigger, deeper Panama Canal opens, it will still be faster and often cheaper to unload most Asian-made goods in California and ship them by truck or train across Arizona to destinations around the country. Companies doing this also won’t pay canal transit fees that can top $400,000, according to media reports.
However, in some cases, it might be more economical to keep everything on a ship, even with the toll and lengthier transit times through the canal, creating opportunities for Eastern ports.
“That’s the trade-off everyone is looking at right now,” Maltz said.
A typical shipment from Shanghai takes 13 days to arrive in Los Angeles or Long Beach, compared with 27-29 days through the Panama Canal and up to East Coast ports, according to railroad Union Pacific, which operates the line running from Los Angeles east through Tucson to Texas and beyond.
“We believe diversions resulting from the Panama Canal expansion in 2015 will not have a material impact on our overall growth prospects,” said John Kaiser, a Union Pacific vice president, in a presentation to stock-market analysts.
Union Pacific operates 640 miles of track across Arizona and employs about 1,250 people in the state. The railroad has been laying a second line of track in Arizona and elsewhere along its busy Los Angeles-El Paso route to handle rising trade flows, including that to and from Southern California. The company also is seeking to build a switching yard near Picacho Peak.
BNSF Railway, which operates a route through Flagstaff to Chicago, also has invested in its Arizona infrastructure to help meet trade flows. The company has nearly 1,500 Arizona workers and just under 600 miles of track in the state. Lena Kent, a spokeswoman for the railroad, said the company isn’t expecting any major shifts ahead from Canal expansion.
Estimates vary, but at least two-thirds and perhaps four-fifths of the Lower 48 states still will be handled more efficiently by trading with Asia through the West Coast, with freight shipped across the U.S. via train or truck. Canal expansion will push this breakeven line farther west, but not dramatically, analysts say.
A deeper, wider canal is more likely to open markets for bulk raw materials rather than time-sensitive consumer goods traveling in containers. One example could involve more shipments of liquified natural gas flowing from Texas or Louisiana through the canal to Asia. On the other hand, West Coast trade with Europe isn’t expected to increase much from the Panama Canal expansion project.
Even when the expansion project finishes next year, the canal won’t be able to handle many ships. One-sixth of the cargo vessels now on the ocean already are too big to squeeze through what will be wider and deeper channels. For them, the expansion will have no impact.
It’s also possible that trade with northeast Asia could slow, partly because of the “nearshoring” trend in which U.S. companies transfer manufacturing to Mexico, said Maltz. Nearshoring has been spurred by rising Chinese wages. To the extent Asian manufacturing shifts west to countries like India, the Panama Canal drops out of the equation. That commerce will flow west to the U.S. around Africa’s southern tip or through the Suez Canal.
Although the Panama Canal doesn’t pose a major risk to the Southern California ports, Arizona and other states still need to make infrastructure investments to keep the goods flowing.
Interstate 10 improvements could include adding lanes and using better technology to keep traffic moving, Halikowski said. Examples of the latter, still in the discussion stage, could involve everything from dedicated toll lanes to transponders capable of reporting truck weights.
The impact to the Southwest from the new locks remains to be seen but likely won’t be dramatic anytime soon.
This “has been a widely debated topic for several years, and it is possible that the ability to move larger ships through the Canal to East and Gulf Coast ports will divert cargo from the West Coast,” reads the BST Associates study. Yet the report also acknowledges that “shippers still prefer to use the Southern California gateway for a large share of their cargo.”
About the Panama Canal
– The canal handles 5percent of the world’s shipping-cargo volume.
– The canal is nearly 50 miles long, about the distance from downtown Phoenix to Casa Grande.
– A series of locks, fed by rainwater, raise ships 85 feet high at the peak.
– The canal handles an average of 37 vessels a day or roughly 13,700 annually.
– Roughly two-thirds of canal cargo either originates in or is destined for the U.S.
– The three main types of cargo are containers, petroleum and grains.
– Expansion will allow another 12-14 ships to pass each day, but cargo volumes will roughly double because many ships will be larger.
– Tolls vary, with some of the biggest ships sometimes paying more than $400,000.
Reach the reporter at 602-444-8616.
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