Widened Panama Canal may threaten West Coast port jobs

By Michael Nacht and Larry Henry

Updated 5:34 pm, Friday, August 29, 2014

1 of 2

• 
  View of the Panama Canal locks under construction in Cocoli, near Panama City, on August 8, 2014. Next August 15 marks the 100th anniversary of the Panama Canal, considered to be one of the 20th century's marvels of engineering and through which goes five percent of the maritime world trade. Panama took control of the 80-km-long canal and the 1,426-square-km enclave that surrounds it at midnight on December 31, 1999 according to the 1977 handover treaty signed by then-presidents of the US, Jimmy Carter and Panama, Omar Torrijos. AFP PHOTO/ Rodrigo ARANGUARODRIGO ARANGUA/AFP/Getty Images Photo: Rodrigo Arangua, AFP/Getty Images
• After three months of negotiations, there is no agreement between the International Longshore and Warehouse Union and the Pacific Maritime Association that represents port employers at 27 West Coast ports. The contract expired July 1, and the parties did reach a tentative agreement on health benefits Aug. 26. The immediate goal is to avoid serious disruption of trade from East Asia that could have deleterious economic effects throughout the West Coast. A longer-term concern, however, is whether a widened Panama Canal will harm the West Coast economy as more shippers shift to all-water routes through the canal to Gulf Coast and East Coast ports.

The Panamanian government began in 2007 to widen the canal in order to accommodate bigger, faster ships, thus doubling its cargo-moving capacity. Completion, scheduled for 2016, will change trade patterns.

Globalization of trade has steadily reduced supply-chain shipping costs. The extra capacity offered by the widened Panama Canal may continue this trend. That, in turn, could result in at least a 6 percent to 8 percent reduction in volume for the West Coast ports. Millions of dollars in lost revenue and the loss of thousands of jobs could follow.

In the past two decades, West Coast ports have benefited enormously from the vast export volume generated from East Asia, especially China, to the United States. To get an idea of the effect of this increased trade, in 2013, businesses providing the cargo handling and vessel services at the West Coast ports — railroads, terminal operators and stevedores, cargo consolidators and others — directly created almost 130,000 jobs (including those held by nearly 13,500 ILWU members). This in turn generated $35.2 billion in expenditures and indirect personal income. These operations produced directly or indirectly almost $10 billion in federal, state and local taxes.

Today, the bulk of the action is at the Los Angeles/Long Beach port complex, which handles more than 70 percent of the imports and exports, followed by Seattle/Tacoma (16 percent) and Oakland (11 percent), according to the Pacific Maritime Association. Roughly 40 percent of all containers received by these ports are shipped by rail to major population centers in the Midwest, Southeast and Northeast.

However, except for those shipping “fast fashion” clothing, consumer electronics and other goods that must reach their markets quickly, many shippers could find the somewhat slower all-water route preferable if it proves to be more reliable and cheaper than the West Coast ports’ water-and-rail approach to cargo handling.

Ports and rail carriers on the Gulf Coast and East Coast are investing tens of billions of dollars in anticipation of more imports coming by ship through the canal as well as more exports going to the growing Latin American middle class.

For example, the Port of Miami has just finished a $2 billion infrastructure improvement program that included deepening port waters to 50 feet, constructing a port tunnel for more efficient access to island facilities, and providing links to the national rail network.

Shippers, too, are investing in major new facilities in the American Heartland where 65 percent of the U.S. population lives. Walmart, for example, has announced construction of an enormous distribution and e-commerce fulfillment center near Indianapolis that will take advantage of a rail hub and all-water routes to East Coast ports. This center will have access to 85 percent of the U.S. population within a two-day truck drive.

To protect West Coast jobs and trade flows, the ILWU and the PMA must work closely together to protect their respective interests by:

•Establishing better cooperation with the Burlington Northern and Santa Fe and Union Pacific rail carriers on service and cost policies so shippers still find it more profitable to use these carriers to reach Midwest and East Coast destinations.

•Working to expand land-use policies that establish warehouses in the vicinity of the ports. These reduce supply-chain costs and air pollution from idling trucks. The Tagami project at the Oakland Army Base is an example.

•Developing smoother labor-management relations to change the West Coast ports’ reputation of unreliability, stemming from the 2002 lockout and work stoppage.

•Improving technologies at the terminals for better container tracking to reduce wait times for containers leaving the ports.

•Moving aggressively to expand exports to Latin America to compensate for possible revenue loss from reduced East Asian imports.

The negotiators need to come to an agreement soon and remember: A constructive labor-management partnership is the best strategy to ensure that both will prosper in the challenging economic times ahead.