The debate over who benefits from the expansion of the Panama Canal usually overlooks the U.S. Gulf Coast. It’s generally believed that there’s insufficient volume going to or originating from the Gulf Coast to justify diverting east-west ocean carrier services from the Panama Canal-to-East Coast route. Relatively low volumes destined to the Gulf Coast can be handled at ports on either the West or East coast depending on the trade route. How- ever, this argument doesn’t look like it will continue to hold water. Gulf Coast ports could benefit the most from the Panama Canal expansion, but perhaps not for the arguments some proponents of this view have offered.
It is helpful to review some trends. Gulf Coast ports’ share of U.S. or the sum of U.S. and Canadian container volumes has increased about 1 percent since the 1990s, with most of the increase occurring since the onset of the deep recession of 2007-2009. During that period, U.S. imported container volumes declined and eventually rebounded to pre-recession levels. Exported containers increased significantly. Since the Gulf Coast ports’ trade is dominated by exports, it’s not surprising that their share of total international volumes increased.
Between Mexico’s growing trade volumes, U.S. refined oil and gas product exports, and agricultural trade, the argument that there is insufficient volumes to justify east-west trade services diverting into the Gulf of Mexico doesn’t look like it will hold up in the future. A few ocean liners have announced new services from North Asia to the Gulf of Mexico.
In 2015, U.S. and Mexican ports along the Gulf of Mexico handled almost 5 mil- lion TEUs, up from 3.2 million in 2005. Gulf Coast ports have had higher volume growth than either the U.S. West Coast or Canadian ports. Four ports, Houston, New Orleans, Veracruz and Altamira accounted for 86 percent of the 2015 total.
Infrastructure improvements planned at Gulf Coast ports, such as channel deepening, container terminal expansion and intermodal capacity, should support further volume growth. Gulf Coast ports like New Orleans and Mobile are well connected to Mid-south and Midwest markets such as Chicago, St. Louis and Memphis.
Source: AAPA, JLL.
Increased imports via Gulf Coast ports would improve the availability of empty containers needed to support export growth. There is a substantial amount of petrochemical refining and processing capacity investment occurring and being planned in Texas and Louisiana. The existing petrochemical capacity, which supports plastics production, has already catapulted containerized plastic pellets to the top of the list of U.S. exports.
Gulf Coast states also handle a substantial share of U.S. agricultural exports and have a growing manufacturing base. Major Asian and European automobile producers have built numerous plants in locations less than one day’s truck drive from the ports.
As exports produced in Gulf Coast states and flowing via the Mississippi and rail to New Orleans and Mobile increase, new jobs will be created. As wages rise, it’s likely that labor will migrate to the Gulf Coast and reinforce import volume growth. Along the Gulf Coast, from the Yucatan peninsula to Florida, the population in urban areas within a day’s drive totals more than 30 million people. That’s a large enough population base to attract east-west trade services into the Gulf Coast.
With the expansion of the Panama Canal, a growing global middle class and the presence of several U.S. industries that are very competitive in the international marketplace, this is a good time to be a Gulf Coast port.
Walter Kemmsies is managing director, economist and chief strategist for JLL Ports Airports and Global Infrastructure. He can be reached by email at Walter.Kemmsies@am.jll.com.