Economic implications of the Panama Canal expansion on the port of Miami

¶ … Rick Scott, Governor

SUBJ:

The Economic Implications on the Port of Miami Due to the Expansion of the Panama Canal

In response to your request for an analysis of the economic implications of the expansion of the Panama Canal slated for 2014 for the Port of Miami, a case study was conducted and the results are reported here. In sum, although there are a wide range of variables involved in the analysis of the economic implications, but the deep dredge project is clearly needed to accommodate the anticipated growth in vessel size and increases in speed. Dredging the port to a new depth of 50 feet will allow the so-called "New Panamax" ships to load and unload cargo and will make the Port of Miami a natural first destination for ships making the east-west passage through the newly expanded Panama Canal. Time is of the essence, though, and this study concludes that the deep dredge project should be fully funded for $77 million and that the project should proceed immediately in order to take advantage of these new opportunities while creating tens of thousands of new jobs in the process.

In sum, this case study found that:

The Deep Dredge initiative is well timed to coincide with the expansion of the Panama Canal in 2014;

The Deep Dredge project will create tens of thousands of jobs in an economically depression region of the State;

The Port of Miami has languished in growth in recent years, and even experienced negative growth from 2002 to 2006;

The minus 50 feet depth that will be achieved by the Deep Dredge project is congruent with industry analysts' recommendations;

Federal funding assistance is likely to be forthcoming for the Deep Dredge initiative; and,

Additional improvements using an agile port configuration will be needed to accommodate fast and mega-ships by 2020.

Taken together, these desirable outcomes indicate that the Deep Dredge project should proceed as planned as discussed further below.

Background and Overview

Currently, the Port of Miami plays an enormous role in the State's economy, accounting for more than 176,000 jobs and billions of dollars in infrastructure investment. In order to capitalize on these resources, though, further improvements in capacity are needed to accommodate the larger ships that will be transiting the newly renovated Panama Canal beginning in 2014. The $77 million dollar Deep Dredge project is intended to ensure that the Port of Miami is properly situated by that time by ensuring the port's channel is dredged to minus 50 feet to accommodate these so-called "mega-ships." In fact, following the completion of the dredging, the Port of Miami would be only one of three major ports on the eastern seaboard that could accommodate these larger vessels that will become increasingly commonplace after the Panama Canal's expansion in 2014.

The Deep Dredge project also comes at a time when the port is gaining increasing market share of the passenger cruise industry as well (Miami-Dade: Port of Miami, 2012), making these investments in the port's infrastructure all the more important. The Deep Dredge project is expected to double the Port of Miami's cargo handing capacity and is projected to create as many as 33,000 additional new trade-related jobs (Johnson, 2012). This improved capacity is sorely needed based on historic levels of performance as shown in Table 1 and depicted graphically in Figure 1 below.

Table 1

Major U.S. East Coast Container Port Twenty-Foot Equivalent Units (TEU) Volumes 2001 -- 2006 (Thousands of TEUs)

Port

2002

2003

2004

2005

2006

Annual Growth

Miami

-2.05%

Source: Knight, 2008

Figure 1. Major U.S. East Coast Container Port Twenty-Foot Equivalent Units (TEU) Volumes 2001 -- 2006 (Thousands of TEUs)

Source: Based on tabular data in Knight, 2008

Analysis and Discussion

Although the calculation of the economic implications of the Deep Dredge project for the Port of Miami are complicated for a number of reasons that will be discussed further below, it is reasonable to conclude that the timing of the project to coincide with the expansion of the Panama Canal in 2014 will have a significant impact across the board for maritime operations. For instance, in his introduction to the white paper, "The Implications of Panama Canal Expansion to U.S. Ports and Coastal Navigation Economic Analysis," Knight (2008) reports that, "The proposed expansion of the Panama Canal will have significant impacts on shipping routes, port development, cargo distribution and a host of others to the U.S. maritime system" (p. ii). Notwithstanding these vagaries, though, Knight also found that, "One of its greatest impacts will be felt in the fast-growing container trade where expansion will enable larger vessels to transit the canal. Vessel calls on the East and Gulf Coasts are also expected to increase significantly as cargo shifts away from the congested West Coast" (2008, p. i).

Unfortunately, this is about as committal as this analyst is willing to go, and Knight concludes that, "The challenge is predicting the timing and extent of the impacts as well as the location of the impacts on fleets and cargo, i.e., which ports will be impacted?" (2008, p. i). This analysis is not all that challenging, though, and it is clear that because of its geographic proximity to the Panama Canal, the Port of Miami is will situated to take advantage of these events in the next few years, provided, of course, that action is taken to achieve the improved capacity needed to accommodate the larger and faster ships that will be used. Nevertheless, there are some unknowns that remain that do in fact complicate the analysis, including:

Availability of water for the Panama Canal operations;

Development at competing ports; and,

The melting of the Arctic passage (Knight, 2008).

Besides the foregoing, Childress (2005) adds that the uncertain global economy remains a significant unknown for future operations at the Port of Miami as well. Despite these unknowns, other industry analysts argue that investments in the Port of Miami today will pay major dividends in the near future because of the Panama Canal expansion, of course, but for other reasons as well. In this regard, Childress (2005) reports that the Port of Miami currently ranks among the top eight sea ports in the United States and the complex has grown in size to more than 640 acres during the past 100 years. According to this analyst, "The port now has ten gantry cranes for loading and unloading containers, and the port has six mobile truck cranes and a whole host of specialized loading vehicles for placing the containers onto trailers for intermodal transport" (Childress, 2005, p. 16).

As noted above, although the Port of Miami's performance languished during 2002 through 2006, the port facilities continue to play an increasingly important role in the State's economy in general and Southern Florida's economy in particular. In fact, current estimates indicate that the port volume at the Port of Miami will triple by 2020 (Childress, 2005), and the Deep Dredge is an important step in achieving this increased capacity, but other current trends in port management will play significant roles in the future as well, including those described further in Table 2 below.