Fitch Sees Competition Between Ports That Expand, Those That Don't

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DALLAS — Regional seaports may struggle to remain competitive with larger facilities capable of handling the massive cargo ships that can be accommodated by the Panama Canal expansion set to open in 2016, Fitch Ratings said in a new report.

Ports hoping to attract shippers will have to borrow to deepen the shipping channels and build the cargo facilities capable of handling the ultra-large post-Panamax vessels, but the return on that investment will be questionable for all but largest ports, the analysts said.

Seven U.S. seaports are currently capable of handling the massive cargo carriers that require a shipping channel at least 50 feet deep. Three more ports should soon join that club, and more are expected to complete the necessary expansion projects within a few years.

"Choosing to upgrade infrastructure may be a difficult management decision for some ports, as capital costs are likely to require borrowing while returns from potential new services remain questionable for all but top-tier ports," said Emma Griffith, director of Fitch's global infrastructure and project finance group, and Robert Rowan, a senior director.

Regional seaports that serve secondary markets and cannot process the larger vessels could lose business as companies move to the new ships, the analysts said. The so-called Panamax ships can be up to 1,200 feet long and 160 feet wide, and are capable of carrying 13,000 of the 20-foot long cargo containers.

New carrier alliances are also stressing port finances because shippers are reducing the ports called on during each voyage and operating fewer but larger vessels, Fitch said.

The large ports that already have channels with the water depth to accommodate the large ships are investing in terminal facilities to maintain or improve their competitive advantages over smaller ports, Griffith and Rowan said.

"Trends towards consolidating services could leave smaller regional ports at risk of losing some services or [being] skipped completely by carriers," they said.

Joint marketing efforts such as the new Northwest Seaport Alliance could be help regional ports compete in the post-expansion shipping economy, the report said.

The alliance was created by the ports of Seattle and Tacoma to coordinate the handling of freight through both while avoiding duplicate capital investments. The new port development authority will not issue bonds. Seattle and Tacoma will remain separately responsible for issuing new debt.

After numerous delays, canal operator Autoridad del Canal de Panama in early 2016 will complete the third set of locks on the route that first opened for transit in 1914. The Panama Canal expansion project cost an estimated $5.25 billion.

U.S. seaports currently capable of handling the larger ships are the Pacific Coast ports of Los Angeles, Long Beach, Seattle, Tacoma, and Oakland, and the Atlantic ports of Norfolk, Va., and Baltimore. Projects under way will open up the ports in Miami, Houston, and New York-New Jersey to the deeper-draft vessels. Channel-expansion projects are also being contemplated in Jacksonville, Savannah, and Charleston.

Ports need at least $28.9 billion of new and upgraded freight-handling infrastructure to handle the expected increases in cargo over the next 10 years, the American Association of Port Authorities said in April.

The dedicated freight programs in the multiyear DRIVE transportation funding bill adopted in July by the Senate could help ports to finance those needed upgrades, said Kurt Nagle, president of AAPA.

"This legislation includes a number of provisions advocated by the port industry to help address our nation's sizable freight transportation needs, including the critical 'first and last mile' connections and trade corridors into and out of seaports," he said.

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