August 6, 2012

Widening of Panama Canal and U.S. Investments in Our Future

This really will be a 'game changer" for everyone whether countries attempt to account for it or not. Those that do will see increased trade, productivity, and job growth while those that don't will see the opposite. As noted in the article, the people, companies and facilities deeply involved in the logistical underpinnings of commerce are aware of the implications and are taking steps to account for the major shifts that will occur once much larger ships are able to transit the canal. In today's tough budget climate, however, finding the money to make improvements to the coastal and inland infrastructure necessary to take advantage of this situation is very difficult.

For example, the Tulsa Port of Catoosa (not far from where I live) provides direct access for goods and materials from the inland midwest to the deepwater port of New Orleans via the Arkansas and Mississippi rivers. It is fairly easy to see the connection between the massively increased trade capacity mentioned in the article and the opportunities implied for ports, communities, and industries in the mid-west yet the willingness (and ability) to make the capital investments necessary to take advantage of this opportunity seems problematic. It has long been known in this area that dredging the 445 mile-long shipping channel in the Arkansas River that connects the Tulsa Port of Catoosa to the Mississippi to a depth of 12 ft (from its current 9) would enable one third more cargo to transit at no additional expense (in practical terms the cost to have a tug move barges downriver is a fixed cost regardless how loaded the barge(s) is).

According to this story, a "ton of freight can travel 515 miles per gallon of fuel by barge, compared with 202 miles per gallon by rail and 59 miles per gallon by tractor-trailer...Each foot you can load a barge deeper adds about 250 tons to a payload," meaning you can move fewer barges for the same amount of cargo or more barges for a dramatic increase in cargo throughput, both at greater efficiency and less cost. The cost to dredge is estimated to be $180M.

While this seems a lot, it pales in comparison to the losses incurred from lessened throughput capacity. Consider this study about the lower Mississippi in which the author compares a decrease of $45M to the US Army Corps of Engineer budget to an annual loss of $9B to the US economy. The lower budget for the USACE means it will have to reduce its dredging operations resulting in assured channels of 38 feet instead of 45 feet leading to less-fully-loaded ships and barges. So, a decision to save $45M will result in the loss of $9B. Doesn't seem to be too smart. Yet our government(s) is in the habit of making such horrible decisions, witness the Solyndra and Cousin-of-Solyndra debacles.

The point to all of this? I guess it is related in an important way to an earlier post about the role of government. There are some things only the government can really do (such as defending the country, tackling nation-wide infrastructure (e.g. Eisenhower's push for the interstate system), guaranteeing the freedoms and restrictions articulated in the Constitution, etc.) while there are other things (most things!) that should be left in the hands of the free-enterprise market. Running a competitive, profitable shipping company, for example, is a market responsibility. Ensuring commerce can flow to, from, and around market is perhaps a government responsibility and by this I mean the construction and maintenance of the transportation system without which nothing else is possible. Something to think about when considering the expenditures our Congress will debate and the next Administration will advocate.

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