Jock O’Connell, international trade adviser to Beacon Economics, told AJOT that the move by major ocean carriers such as Maersk Lines to build huge 18,000-plus teu ships is beginning a trend of container ships that will be unable to use the widened Panama Canal, limited to vessels of up to 13,000 teus. He sees some of the mega ship business coming to Atlantic coast ports via the Suez Canal: “ocean carriers will deploy the mega container ships destined for Europe and the U.S. East Coast through the Suez Canal and by-pass the Panama Canal altogether,” he says. O’Connell sees some 13,000 teu ships using the Panama Canal making one stop at a Caribbean mega-port and using smaller feeder ships to deliver goods to Gulf Coast and East Coast ports “so the investments by East Coast ports in deeper ship channels and bigger container terminals may not be rewarded because most of these ports are unlikely to ever see the mega-ships they’ve been dreaming about.” O’ Connell adds that anticipated gains in container market share for U.S. East Coast ports will be kept to a minimum because of the terminal upgrades being made at the Ports of Los Angeles and Long Beach. Of course the caveat to all trade projections being the ILWU contract negotiations. O’Connell says these investments include improved rail connections to Chicago and other destinations that will result in “minor market-share losses when the Canal opens.” Complicating the picture further is that the widened Panama Canal opening has been delayed due to a dispute between the builder and the Panama Canal Authority (see below). Ports of LA/LB Address Panama Challenge Kathryn McDermott, former executive deputy director business development for the Port of Los Angeles, said the port is moving decisively to address “challenges” from Atlantic coast ports who hope to gain market share from Los Angeles and Long Beach once the Panama Canal widening is complete. A Port of Los Angeles spokesman told the AJOT that Los Angeles is embarked on a major modernization at its TraPac Terminal, scheduled to open in 2016 and handle three mega ships at the same time. Two of the three berths will be automated. The project has been the subject of controversy with the Los Angeles City Council because of cost overruns. First approved in 2009, TraPac and port executives decided to make a major change in 2010 adding automated cranes mounted on rails instead of on rubber-wheels. That change accounted for $175 million of the increase, according to the official. The result increased costs between $250M to $510M, which has now been approved. Terminal designers say, the investment in rail technology increases productivity and will speed the loading and unloading of containers off mega ships. “Investments in new infrastructure projects will maintain our lead in cargo delivery to Mid-west destinations such as Chicago,” McDermott told the AJOT in an interview. Adding, that while “we are not the lowest cost port and so there may be cheaper ways to deliver cargo, but not faster.” McDermott noted that shipping containers from Shanghai through Los Angeles is much faster than going through New York: • Shanghai-LA-Chicago= 13 days sailing+5 days rail = 18 days • Shanghai-NY-Chicago=26 days sailing +3-4 rail = 29 days Al Moro, acting port director for the Port of Long Beach, told the AJOT that the announcement of the widening of the Panama Canal initially worried port officials: “When we first heard about the widening of the Panama Canal we were worried that we would lose discretionary cargo, so we embarked on an investment in our infrastructure to enhance the rail transport, reduce bottlenecks and improve truck handling. A port can’t just say that because you have a fifty-foot draft that that means you can accommodate the bigger ships. You need a lot more.” Moro says that spending for new modern port facilities such as the Middle Harbor Project will handle mega container ships that cannot access the Panama Canal even after it is widened. He said that when completed, the result is the most fully automated container terminal in the US. A Long Beach port official said he expects the “go live” date for the first ship to arrive will be around May 2015. The Middle Harbor Redevelopment Project is the modernization of two aging shipping terminals. The program is adding on-dock rail capacity, shore power hookups and a new longer wharf to move twice the cargo with half the air pollution. The Middle Harbor Redevelopment Project $1.3 billion project began construction in 2011, and is scheduled for completion in 2019. The new terminal will be able to handle three 18,000 teu ships at the same time utilizing fully automated facilities, officials say. New Agreement on Panama Canal Construction The Panama Canal Authority (ACP) announced in a press release that a conceptual agreement had been reached “subject to documentation, review and final signature by the parties with the new locks project contractor Grupo Unidos por el Canal, S.A. (GUPC).” The agreement addresses the following issues: • The construction of the third set of locks is completed by December 2015. • The 12 lock gates in Italy must be in Panama by December 2014, to be transported in staggered shipments. • The Performance Bond for US$400 million may only be released to Zurich North America to obtain financing. • GUPC will pay US$100 million and ACP will advance US$100 million, which will enable works to regain a normal pace in March. • The moratorium for the repayment of advances may be extended until 2018, subject to fulfillment of certain milestones and other conditions. A key part of negotiations is the role that insurer Zurich plays and it will convert a $400 million surety bond, taken out by the consortium in case the project failed and use the money for new financing. $1.5 billion is now projected by the canal authority to complete the project. The press reports outline the following impacts from the delay: • The ACP said a two-week work stoppage means the project will not be completed until at least December 2015, a delay that could cost Panama millions of dollars in lost shipping tolls. • The delays are also a setback for companies worldwide that want to move larger ships through the waterway that links the U.S. Gulf Coast to Asia. • A dispute over $1.6 billion in cost overruns between the builder and the Panama Canal Authority will be settled by arbitration.