Giant new Panama Canal ships could carry lower costs to Kansas producers

The Panama Canal turns 101 years old this year, and that triumph of pre-World War I vigor is getting a much-needed updating that may benefit Kansas exporters, importers and, possibly, consumers.

The $5.3 billion widening and deepening of the 48-mile canal, which connects the Atlantic and Pacific oceans, is nearly complete, and the expansion is set to open early next year.

The addition of a third set of locks and a new channel, plus numerous other improvements, will double the capacity of the canal by allowing more and larger cargo ships to travel faster through the canal.

It’s the biggest upgrade since it was built in 1914 and is a move to stay relevant. Today, most of the oceanic container ships traveling between the U.S. and Asia are too big to use the canal. They were built for traveling from Asia to the West Coast, where their goods are shipped east by rail and truck.

Widening the canal to accommodate these bigger ships – called SuperPanamaxes because they are bigger than the old maximum size – won’t change everything. Traffic headed to and from the western half of the U.S. will almost certainly use the West Coast ports.

And, because of the greater travel time and expense to sail through the canal, traffic to and from the eastern half of the U.S. will be re-routed only if it’s less expensive than rail from the West Coast.

The biggest beneficiaries, according to a 2013 report by the U.S. Department of Transportation, will be East Coast and Southern importers and consumers of Asian cars, machinery, electronics, clothes and other goods. Everything they buy includes the cost of hauling it 3,000 miles from California.

But second in line to benefit are Midwest producers of of bulk materials for export, such as grain and soybeans, but also gasoline, chemicals, coal and metals.

U.S. grain companies sell a vast quantity of wheat, corn, grain sorghum and soybeans to Asia. Larger ships headed through the Panama Canal will allow them to put their loads on a barge headed down river to Louisiana, where it would be loaded onto a SuperPanamax.

The Soy Transportation Coalition estimates that the expansion will allow shippers to increase the amount going through the canal from 2.1 million bushels of soybeans to 2.6 million bushels. It estimates this will lower freight costs for some shippers by 20 percent, or 35 cents per bushel.

“Success is getting a product to the customer at the lowest cost. It’s a cost game,” said Mike Steenhoek, the coalition’s executive director.

But, not all farmers will benefit. The advantage of a wider canal only helps those within easy reach of river transportation. The canal widening will almost surely help farmers in farm states further east, such as Ohio, Indiana, Illinois and Iowa, that have good river access.

Steenhoek said the old rule of thumb was that it made sense for a grain company to ship by river barge if it was within 70 miles of a navigable part of the Mississippi River system, such as the Illinois and Ohio rivers. With the lower costs, he estimates it’s now about 160 miles.

Ports for Kansas growers

That puts Kansas somewhere between where it makes sense to ship south versus ship west.

While there are no ports in Kansas, there is the Port of Catoosa on the Verdigris River in Tulsa. The McClellan-Kerr Arkansas Navigation System runs from there to the Arkansas River and eventually the Mississippi River, with multiple ports along the way.

Gavilon Grain, which owns the large former DeBruce Grain terminal in Haysville, hauls large quantities of Kansas grain and soybeans by train from there to Catoosa. Much of that grain will reach Louisiana and be loaded onto large dry bulk grain ships bound for Asia.

Bob Portiss, director for the Port of Catoosa, said the Panama Canal widening will be felt as far inland as Wichita.

“It can’t help but have an impact,” he said.

International trade will grow and the West Coast ports are full, he said. It may take time as U.S. ports wrestle with the investments required to handle the SuperPanamax ships.

The advantage to shipping by water is obvious, he said. A crew of eight is all that is needed to handle 12-barge convoy of 720,000 bushels of grain. He said he had a friend in the grain business who swore he could ship three bushels of grain to New Orleans for less than the cost of a postage stamp.

The port carries about 2 million tons of Kansas goods in and out per year. The two single largest categories are agricultural: dry fertilizer coming in and grain leaving.

Portiss said he sees a future not just with more barge shipping for Kansas and Oklahoma, but also more rail and more trucking.

“Go to Chicago, Norfolk or Atlanta and they’ve more trucks than they can say grace over,” he said. “We’ve got truck and barge and rail and the space to put in more.

“I really do believe that in my heart of hearts Wichita and Tulsa will become logistics hubs because we have the land and the transportation.”

This story was originally published September 9, 2015 at 8:11 PM with the headline "Giant new Panama Canal ships could carry lower costs to Kansas producers."