What’s in store for the US West Coast ports and their Gulf and Eastern counterparts in the post-recession future may lie with how successful the Panama Canal expansion is and the role of the Class 1 railroads. By Martin Rushmere, AJOTAn 800-pound gorilla is lumbering around the room when West Coast ports discuss their strategies and future, but no one wants to look at it. That creature, according to IHS Global Insight transport analyst Charles Clowdis, is the Panama Canal. “Come 2014 and the West Coast up to Seattle stands to lose 20 to 25% market share,” he says. “Ports such as Houston are lining up to do business with the Canal and when the widening is finished, many carriers will prefer the all water route to the East and Gulf Coasts.” Mobile and Charleston are also among those that are expecting canal traffic. Clowdis says an indication of the thinking of importers and exporters is Wal-Mart’s massive new distribution center near Houston. He acknowledges that the canal has had a pattern for being aggressive with its rate structure, but says the management is creating a business model to present to individual shipping lines and related businesses, based on individual cost advantage, and will become much more rate sensitive in the next several years. “If the railroads see what is happening with more traffic going through the canal, they will drop their rates to get more goods going through the West Coast.” Clowdis charges Long Beach and Los Angeles with complacency and their tendency to automatically assume that they will get their traffic back when the recession is over. “They have some strikes against them. The cost to berth is higher than at other ports. They have also invoked very strenuous emission control legislation and do not consider the financial burden faced by the owner operators, who make up 60% to 70% of the truckers. If operators have to retrofit the vehicles it puts a great burden on them.” Southern California needs to become more “freight friendly” to the trucker draymen, he warns, otherwise a large number of owner/operators could decide to move out of the industry because of the cost of retrofitting their trucks. Clowdis stresses that the ports will always have an important role to play with non-discretionary traffic, serving a surrounding population of 17 million people. “But they are losing traffic now. Canadian ports are a thousand miles closer to Shanghai and the connection through Canadian National to Kansas City Southern and Chicago is a lot quicker. Once that railroad is fully streamlined, it gives them a connection to the heart of the south, Norfolk Southern, CSX – it becomes a formidable route.” Warren Buffett’s takeover of BNSF is set to shake up the whole transport industry. “He is a smart investor and he opens a lot of doors. This deal is showing faith in land transportation in the US.” Mexico’s Lazaro Cardenas is also a competitor. “Like Prince Rupert, if they market themselves right, they can become a driving force.” Fellow transport consultant Dan Smith, a principal with Tioga Group, is skeptical of the prospects of Mexico’s mooted Punto Colonet, which he terms a “vulture project. It was conceived when Southern California was suffering huge congestion and was based on the misfortunes of the California ports, without any real economic logic. It’s a huge project, costing billions and does not seem to be making much progress.” He disagrees with Clowdis over the threat to Southern California and says the ports should not panic and will always be the dominant force in the country. Dan Smith notes that in 2007 the West Coast was expecting 84% of its growth to come from China at a 6% compound annual growth rate. This has since dropped to 70% and a 5% CAGR. Smith agrees with Clowdis that Warren Buffett’s BNSF takeover bodes well for the industry and will lead to improved intermodal efficiency. However, he is waiting to see which aspect of the rail operations the Sage of Omaha will focus on, although he is sure that conne