Panama Canal project to bring more Asia cargo to Houston

By Chris Baltimore
Reuters
December 10, 2009

LA PORTE, Texas, Dec 10 - Warehouses holding everything from empty beer kegs to frozen chickens crowd the roadside along Highway 146 south of Houston, and the epicenter of the building boom is in Panama, about 1,800 miles away.

The Port of Houston, which handles more foreign tonnage than any other U.S. port, could further cement its dominance in the export trade once a $5.25 billion project to widen the Panama Canal is operational in 2015.

With an eye toward feeding the U.S. consumer's insatiable demand for Asian-made goods, U.S. retailers like Wal-Mart Stores Inc. and Home Depot have both built millions of square feet worth of warehouse space around Houston ports.

"They're popping up every place," said Jimmy Jamison, director of operations at the Port of Houston Authority, referring to the warehouses -- many of which have been built on "spec" -- or without a dedicated tenant. "If they wait until the Panama Canal expansion, that property won't be there."

The widening -- the first major expansion since the Panama Canal opened in 1914 -- could open the door for more goods from giant Asian exporters like China to flow through Houston.

Goods unloaded onto Houston's docks -- which now go mainly to other Texas cities like Dallas and San Antonio -- could end up in U.S. Midwest cities like Chicago.

Chicago is a key U.S. distribution center and continues to grow in importance. As a case in point, Walmart in recent years opened a 3.4 million square foot distribution center in Elwood, Illinois, south of Chicago.

U.S. imports from East Asian nations like China and Japan are valued at about $410 billion a year, and about half of that is handled by ports in California, Oregon and Washington, according to the Greater Houston Partnership.

But about 70 percent of cargo unloaded on the West Coast is sent via truck and railroad to markets east of the Rocky Mountains. That creates an opening for ports like Houston to extend their reach into U.S. Midwest cities like Chicago.

"The expansion that is going on in Panama has got the Port of Houston written all over it," said Jeff Moseley, president of the group.

THE KING OF LOGISTICS

To the east of Houston lies Cedar Crossing Business Park in Baytown, the largest industrial park in Texas, which houses warehouses owned by Walmart, Home Depot and others.

Walmart's 4-million-square-foot facility at Cedar Crossing, opened in 2005, is one of the largest such facilities in the world. A Walmart spokesman declined to comment.

"We can all agree that they are kind of the king of logistics," Moseley said of Walmart, calling its decision to locate in Houston "a loud resounding validation of this strategic location."

Big U.S. retailers are looking to diversify their distribution chains to avoid heavy reliance on congested West Coast ports like Los Angeles and Long Beach in California.

"Some shippers got burned in the past, when they had all their cargo coming into Los Angeles," Bingham said. "The biggest beneficiary on the Gulf Coast has been Houston."

Home Depot operates a 750,000 square-foot distribution center in Cedar Crossing, but most of the cargo housed there currently arrives via railroads that ship supplies from West Coast, said Jeff Siewert, Home Depot's director of international logistics.

Home Depot, which imports goods from about 30 Asian countries including China, Vietnam and Thailand, would consider a water-borne route to Houston if its shippers offered one, Siewert said.

"As we think about our opportunities to ship all water into Houston, that has always been on our radar screen," Siewert said. "We're looking to see what shipping lines decide to do."

UP FOR GRABS

Some U.S. analysts have predicted that about 20 percent of cargo ships that now serve congested West Coast ports like Long Beach and Los Angeles could divert to Houston once the Canal is widened to handle a huge new breed of container vessels known as post-Panamax ships.

"There is going to be some marketshare gain," said Paul Bingham, managing director at IHS Global Insight, an economic forecaster, who pegged the diversion rate at 5-10 percent.

About 14 percent of container traffic handled by the Port of Houston comes through the Panama Canal, a percentage which port officials say could grow to about 25 percent by 2020. Houston is the closest U.S. port to the Panama Canal.

The port will spend about $1.2 billion to expand its Bayport Container Terminal to enable it to handle about 1.4 million containers per year. The port is purchasing giant cranes capable of unloading post-Panamax cargo ships, which can carry up to 12,600 containers, almost three times the current number.

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