West Coast ports face struggle to maintain relevance

The global financial slowdown has already slashed traffic, and a major Panama Canal expansion will bring new competition.

By Ronald D. White


November 28, 2008

The slowdown in international trade has left the docks at the nation's biggest seaport complex quieter than they've been in years.

Some workers, particularly non-union "casuals," at the Los Angeles and Long Beach ports wait for shifts that never come. Automobiles and other merchandise pile up as consumers dig in for a long economic winter.

But the problems at the twin ports, along with smaller West Coast harbors, extend beyond the nation's economic woes, maritime experts say, and changes on the horizon could leave the seaports struggling to keep customers.

That's the assessment of a recent report by London-based Drewry Supply Chain Consultants, a maritime industry research firm that has about 3,000 clients in more than 100 countries. West Coast ports will see increased competition from the Panama Canal, which is undergoing a bigger-than-expected expansion due to be completed in 2014, Drewry said. In addition, rising Chinese labor costs will push some manufacturing back to Mexico and South America.

Even if global trade returns to its formerly robust pace, Drewry said, "any new trade will probably pass the West Coast by. Volumes are unlikely to decline, but the days of strong growth on the Pacific Coast are behind us."

The implications are potentially enormous.

The ports of Los Angeles and Long Beach are directly or indirectly responsible for 886,000 jobs in California, according to a 2007 study by the Alameda Corridor Transportation Authority. The $256 billion in U.S. trade that moved through the ports that year, including $62.5 billion in California cargo, was also responsible for $6.7 billion in state and local tax revenues, the study said.

But times change, Drewry and other maritime experts say, and future economic conditions will shine a more favorable light on the all-water routes to East Coast and Gulf Coast ports by way of the Panama and Suez canals.

Some of that trend can be seen already.

A.P. Moller Maersk, the world's biggest shipping line, this year reduced its business from Asia to the U.S. West Coast in favor of stronger Asia-to-Europe trade. This month, the Denmark-based giant announced more changes.

Maersk said it would join with the world's third-largest shipping line, France's CMA CGM, and cut back its Asia-to-U.S. business by an additional 8% with new routes through the Panama and Suez canals.

The new business partnerships come at a time when the maritime industry is reeling from the global economic slowdown and credit crisis, delaying delivery of new vessels and killing deals considered too much of a revenue risk. Those pressures, Drewry says, will result in changes that will be difficult to unravel even as global trade eventually recovers.

Officials at West Coast ports say that they are doing what they can to remain competitive. But Drewry and other authorities say the ports suffer from a number of problems, including a lack of land for expansion and rail capacity that is significantly lower than in the past, despite billions of dollars in investments.

The two largest ports -- Los Angeles and Long Beach -- also face steep and costly environmental hurdles to expansion projects that had slowed to a crawl until this year. Some of those plans face serious legal challenges from trucking and trade groups.

In the meantime, the Panama Canal expansion project has come a long way from something that generated amused smirks from the maritime community when it was first announced in 2006.

As a sign of the new esteem with which the project is now regarded, Panama Canal Authority Administrator and Chief Executive Alberto Aleman Zubieta was honored Monday with an excellence award at the Asia-Pacific Economic Cooperation Summit in Lima, Peru, for "successfully moving the canal from a profit-neutral utility to a business-oriented enterprise."

Now, Drewry says, West Coast market share is about to take a serious hit, "possibly forever," from a "rejuvenated, aggressive and soon-to-be widened Panama Canal" that will have locks capable of handling cargo ships carrying as many as 13,000 containers -- much larger than the 8,000-container ships it was originally expected to accommodate.

Drewry isn't the only one who thinks so.

"With the ability to handle most of the world's largest ships, the Panama Canal will begin to enjoy better economies of scale than its primary competitor, which is the transpacific intermodal route from Asia to the West Coast and to the rest of the U.S. by rail," said Asaf Ashar, head of the Washington office of the University of New Orleans' National Ports and Waterways Institute.

"It's cheaper to move cargo by ship than it is to transfer it to rail and go overland," Ashar said. "The logical conclusion is that market share will be lost."

Meanwhile, East Coast ports are frantically working to be prepared once the Panama Canal expansion is complete.

The American Assn. of Port Authorities, which represents most of the Western Hemisphere's major harbors, is devoting the current issue of its Seaport Magazine and an upcoming seminar in January to the shifting international trade routes and the Panama Canal expansion.

"It's become a very big deal," said Aaron Ellis, a spokesman for the trade group.

Port of Los Angeles Executive Director Geraldine Knatz said the port's willingness to address environmental concerns ended a logjam of expansion projects this year.

Saying that the port "should be investing $1 million a day in its capital spending plan" to increase efficiency and reduce pollution, Knatz said the facility was on pace to award $383 million in construction contracts this year.

Knatz said port officials were fully aware of the threat posed by projects such as the Panama Canal expansion, but she said the local ports had no choice in the way they must proceed.

"We're aware that some cargo has been diverted because of what we are trying to accomplish here," Knatz said, "but there is no way we would have been able to move forward at all with these construction projects if not for the steps we are taking to reduce pollution."

Latin America Combats Credit Crunch

The global financial crisis is taking a toll on Latin American economies and their financial systems that will lead to a sharp reduction in lending for the remainder of this year and in 2009. In a bid to reduce the negative impact on economies and banks as much as possible, governments, central banks and multilateral entities have been very active in providing liquidity and financing for banks and companies.

Central Banks to the Rescue?
Central banks in many Latin American countries have acted swiftly to inject of liquidity into financial systems to ensure credit does not dry up as a result of the global crisis.

Central bankers, finance ministers and the Latin American Banking Federation have repeatedly assured companies and the public that the region is better prepared than ever to face this sort of crisis, thanks to sound macroeconomic fundamentals and large foreign reserves.

Central banks in the largest countries have agreed to work more closely with one another through technical cooperation and information sharing, but interest rate decisions are still made at the national level, not coordinated among countries.

The Role of State Banks
Governments in several nations have also aggressively used public-sector banks to provide credit and other types of financing to particularly vulnerable to the crisis or those that are important for economic growth.

Brazilian federal banks Banco do Brasil and Caixa Economica Federal and Sao Paulo state bank Nossa Caixa have together made several billion dollars worth of financing available for various industries, among them the country's important export and automotive sectors.

Chile's government acted to increase the available capital of the country's only state bank, BancoEstado, by 50%, to the tune of some $500 million. This is to ensure financing for small and medium-sized companies and mortgage lending at favorable rates for the middle class.

State-owned Mexican development banks Nafin, Bancomext and Sociedad Hipotecaria Federal put up close to $7 billion to support the local capital markets, real estate financing and debt issued by non-bank financial institutions and residential mortgage-backed securities.

Multilateral Moves
Several multilateral entities have also pledged billions of dollars in liquidity for Latin America's financial system, as well as increasing regional credit lines and lending volumes.

The Andean Development Corporation (CAF), Inter-American Development Bank (IDB) and Latin American Reserve Fund together promised $9.3 billion in liquidity to aid the region's financial systems.

The CAF raised its credit lines for financial institutions in its 17 member countries from $1.5 billion to $2 billion.The IDB is speeding up loan issues and expects to lend a record $12 billion in 2009, and also pledged a $20 million financing facility for the region's 600 microfinance institutions and their 8 million clients.

Outlook
High inflation, rapidly falling commodity prices and deteriorating consumer confidence are all contributing to the more adverse outlook for the region's banks. Mexico's banking sector is especially troubled, with the possibility of bad loans increasing to more than 10% of total loans in 2009.

But Latin American banks are well-capitalized in general and have reasonable access to liquidity. In contrast to the gloomy economic outlook for developed economies, the region’s banking sector will continue to attract investments from some international banks and private equity investors in the near term.

IMF and World Bank paint a bright future for Panama

Contributed by Sam Taliaferro - Panama Guide

It does not come as a surprise that the Multi-national banks are touting Panama's strong financial position as they are also committing billions of dollars to the canal expansion project. At a recent meeting in Washington, Augusto de la Torre, chief World Bank economist for Latin America and the Caribbean, predicted that Panama would stand out as the fastest growing country in Latin America in spite of the impact of the financial crisis. The only cautious statement was "Estimates by the two financial institutions varied somewhat by the magnitude of the impact the global financial slowdown would have on Central America, as well as the effect recessions within the economies of key trading partners may have on the local economy."

We often hear about these banking entities being involved in high level projects in various countries but we don't know much more than what is put out by their press releases or the news media. So what really are these world banks and what is their purpose? I found an article from this week put out by the Global Policy forum, who's stated mission is to monitor policy making at the United Nations, promote accountability of global decisions, educate and mobilize for global citizen participation, and advocate on vital issues of international peace and justice.

It is interesting to note that both these financial institutions came about In 1944, as the end of World War II was coming into view and in the aftermath of financial disorder following the Great Depression, the two Bretton Woods institutions, the World Bank and the International Monetary Fund (IMF), were created. Interestingly, in the next week Brenton Woods III will take place because a similar economic situation is facing the U.S.. The report shines an unflatering light on the organiszations their continued failure to follow their mandates.

Here are some interesting excerpts from the article:

Both institutions have also played havoc with the development process of many developing countries, pushing them deep into debt and economic decline for a number of years."

However, over the years, both institutions deviated significantly from their respective mandates to become politicized, over-ambitious and grasping all decision-making in countries that fell in dire need of their resources.

At the same time, the management of these institutions is dominated by the US, a handful of European countries and Japan. While the institutions preach good governance and management, they have been unable to adapt themselves.

Panama: Boom or Bust?

By Michael Manville for nuwireinvestor.com - While most of the world faces downward-sliding real estate markets and a global credit crunch, it is easy to assume that Panama's real estate market will follow. On the other hand, perhaps a speculative real estate boom has coincided with a variety of real geopolitical events that enhance the intrinsic value of Panama's real estate market in the wake of new trends related to globalization. Boom potential: Panama has been posed to grow exponentially in terms of tourism and real estate, particularly with baby boomers and other retirees and expatriates looking for affordable alternatives to well-established markets such as the Caribbean, Mexico and Costa Rica. Over the last several years, Panama has emerged as one of the hottest international destinations for tourism, real estate and business investment. Panama City hotels have doubled their rates and still there is almost no vacancy. Million- and billion-dollar projects are scheduled throughout the country, and real estate agencies have sprouted up on every corner. (more)

source: Panama Guide

One More Reason to Consider Retiring in Panama