Widening the Panama Canal

What it could mean for New Orleans

Roughly 1,600 miles south of Louisiana, in the vicinity of the ninth parallel north of the equator, a massive construction project is under way. The work will take several more years and cost billions of dollars to complete. But the Central American nation of Panama expects the result will be nothing short of an economic transformation of that country.

Far to the north in New Orleans, some businesses are keeping close tabs on the progress of the work. Why the interest in such a remote project?
It is because the goal is to greatly widen the Panama Canal, the original construction of which ranked as one of the most complex engineering projects in the world. The expansion of this 50-mile channel, which opened in 1914, will enable bigger ships than ever before to traverse the shortcut between the Atlantic and Pacific oceans. Estimates suggest that total cargo moving through the canal could double by the year 2025.

That prospect has port cities all along the Gulf and East coasts salivating. Every port director from New York to Galveston is keenly aware that the Panama Canal expansion will dramatically increase the flow of cargo between Asian countries and distribution centers in the southern and eastern U.S. They know that much of the cargo will be carried in 20- and 40-foot-long steel containers stacked high on the decks of super-sized cargo ships. And every port manager hopes to snag a piece of the action.

Gary LaGrange, president and CEO of the Port of New Orleans, is determined to jump into the fray. To pave the way he and the port’s board of commissioners have laid plans that could triple the container-handling capacity of local wharves.

“With the opening of the expanded Panama Canal you’re looking at a huge escalation of cargo coming through, in larger ships,” he says. Because most U.S. ports cannot accommodate the giant new container ships, much of the cargo will be offloaded from them to smaller ships that will carry the load on to various ports. “We want New Orleans to be one of those ports,” LaGrange says.

The proposed expansion of local cargo capacity would grow outward from the riverside Napoleon Avenue container complex, which the port’s master plan describes as “one of the more technologically proficient container terminals in the world.” The terminal was built to handle some 360,000 containers a year and more than 1,000 “truck moves” per day.

In the first stage of the expansion, the port would open about 20 more acres of riverfront land for container marshalling, and add two ship berths equipped with three container cranes.

A second construction phase would add another 25 acres of marshalling space and create a container transfer facility that would enable the quick movement of cargo from ships to any of the six mainline railroads that connect New Orleans to mid-America and Canada.

The port pegs the cost of expanding local container capacity at almost  $500 million. Along with a host of other projects, ranging from basic maintenance to dock and warehouse upgrades to a new passenger cruise ship terminal, the cost for improvements proposed during the next decade could top $1 billion, according to port documents.

Not surprisingly, exactly where all the money will come from is a matter of intense discussion. Along with most other ports around Louisiana, the Port of New Orleans has traditionally paid for the bulk of major improvements using its own revenue sources. While the state supplements port expenditures to some degree, most big projects in the past have involved issuing bonds for debt, and then repaying the debt through port operations.

Joe Accardo, executive director of the Ports Association of Louisiana, says that Louisiana ports have self-financed about two-thirds of the cost of projects valued at $700 million during the last five years. The state kicked in about 20 percent of the projects’ cost, and the rest came from various other sources, including federal grants, he says.

As costs to upgrade facilities have risen into the stratosphere, debt-based financing of port growth is becoming less feasible. And Accardo says the piecemeal approach to gathering funds makes it “very difficult to plan for and build large facilities, such as one that might cost $100 million or more.”

Accardo says the ports association soon will complete its own long-range plan for Louisiana ports, and the plan will urge developing more stable and “sustainable” funding sources for facilities that serve maritime commerce.

He also says that a key to growing port business is the development of more businesses that expand commerce overall. “We will be more competitive, port-wise, if there are more businesses in the state” producing goods that need to be shipped and creating demand for materials to be brought in, he says.

“A ship that comes through the Panama Canal is going to take that cargo to the port that can most efficiently move it to where it’s needed,” Accardo says. “Other ports are going to compete vigorously for new cargo. We cannot compete if we do not have good, modern facilities.”

LaGrange says local port officials are exploring every financing option they can think of to cover the cost of expansions and upgrades. He says one idea that may hold promise is seeking private equity investment: The port might invite a private company that already does business here – a shipping line, for instance – to invest money in and take partial ownership of a cargo facility and share in the revenue it generates.

“We’re looking at it constantly to figure out the best way to do it,” he says. The port currently is studying the feasibility of partnering with a private entity on a container-cargo operation, but LaGrange says if the concept works, it could be applied to other kinds of port operations as well.

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