While it's too early to know how global trade routes will be affected by the Panama Canal expansion scheduled for competition by 2015, California ports and state leaders should prepare for increased competition, business and labor experts told a state Senate panel on Friday.
Widening the canal will allow even larger ships leaving Asia to sail directly to the East Coast without stopping in California. Because of concerns that the project could negatively affect the state's economy, Sen. Curren D. Price, Jr. convened a hearing of the Senate Committee on Business, Professions and Economic Development at Los Angeles City Hall.
"What if the biggest of the ships go through the Panama Canal?" the Los Angeles Democrat asked. "What does that mean for us? We need to hear what we are up against, who might be impacted and what we can do on the state level to be prepared."
The panelists generally commended Price for considering the issue, and said California must ensure the state's ports remain competitive - especially the San Pedro Bay complex of the ports of Los Angeles and Long Beach, the nation's two busiest ports. But they cautioned the global shipping industry is complex, with many different factors affecting what goods are shipped where.
Panelists said containers most likely to be shipped through the new Panama Canal would be filled with so-called discretionary cargo - material bound for U.S. markets outside the Southwest. For now, much of that cargo flows through the Ports of Los Angeles and Long Beach and then onto rail cars traveling eastward. In the future, it is possible some of that cargo could flow through the canal and then be unloaded from ships in eastern ports like Houston, Texas and Savannah, Ga.
But just because retailers can ship goods directly to a port like Houston does not necessarily mean they will, said Jock O'Connell, an international trade economist based in Sacramento. Issues like cost - no one knows how much the Panama Canal will charge companies to go through the new locks - and weather play into the analysis. The fall, typically a busy time for cargo imports, also is hurricane season in the Caribbean, making it possibly not the mostly reliable place to ship materials.
"This is an incredibly complex matter," O'Connell said. "We can anticipate some diversion but the true extent of it? It's still up in the air. What we are dealing with here is not a straightforward equation."
Ferdinando Guerra, associate economist at the Los Angeles County Economic Development Corp., told the committee the state also must prepare for increased competition from ports in Canada and Mexico, in addition to East Coast ports.
"Our seaports have been facing multiple threats for the past decade and this will only get worse," Guerra said. "This is a very complex issue that involves many critical related factors that will ultimately determine how much of our market share is lost. It's not a matter of if. It's a question of how much market share we will lose."
O'Connell said one option is not to focus so much on market share but instead to try to stimulate more imports and exports.
"As long as trade continues to grow, there is an opportunity for increasing and retaining levels of business while losing market share," O'Connell said. "Simply losing market share is not the end of the world."
T.L. Garrett of the Pacific Merchant Shipping Association said California legislators could help the state hold onto its competitive advantage by thinking critically before enacting any new regulation at the ports. He said it would also be helpful if California reformed the process for obtaining approval for projects under the California Environmental Quality Act to make it more efficient.
Garrett also said it might be a good time to let the state's residents know how important the ports are to California's economy. According to materials distributed at the hearing, 40 percent of total containerized cargo entering the United States arrives at California ports. The ports generate roughly $7 billion in state and local taxes annually, committee data shows.
"We need to promote trade," Garrett said. "We need to bring attention to it. We need to let the citizens of this country know how important trade is to their daily lives."
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