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Panama Canal upgrade spells uncertainty for U.S. ports

Beyond the berths at Seagirt Container Terminal in the port of Baltimore, tamping machines pound the earth and bulldozers clear space for a long stretch of new quay. When the work is done, Seagirt will be able to handle some of the largest container ships in the world.

At the moment, barely any of the vessels that sail up Chesapeake Bay to Baltimore need such a facility. But that could change in 2014 when the $5.25-billion (U.S.) project to build larger locks along the Panama Canal is due to be completed.

The project will remove a bottleneck that has prevented the large ships on many major trade routes sailing direct to the U.S. east coast from Asia. The new vessels are expected to have up to three times the capacity of the biggest ships currently on the route.

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Scenes like the one at Baltimore are being played out all along the east and gulf coasts ahead of what promises to be the biggest shake-up in U.S. distribution since the advent of shipping containers 50 years ago.

Ports, terminal operators, rail companies and state governments are jostling to win the new traffic they expect to be generated by the bigger ships.

Billions of dollars are being spent to build new quays, deepen channels and expand rail tunnels.

Consumers, manufacturers and retailers in the U.S. mid-west and inland eastern cities could all benefit.

Containers heading to these areas will have the option of going via east coast ports then heading west on trains. Their traditional route has been eastward from California, where larger ships free of Panama Canal restrictions already dock.

Seagirt should emerge a winner, says Bayard Hogans, a manager at the facility, part of the Ports America group.

"We feel we're going to be one of the ports that's prepared when the Panama Canal expands, for these new opportunities," Mr. Hogans says.

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Yet it remains unclear how many of the projects will generate enough traffic to justify the investments.

Bill Clement, president of the container-handling division of CSX, the largest eastern U.S. railroad, says it will take some time for new trade flows to establish themselves.

"Our experience has been that whenever new capacity is built in a global transportation system, people find a way to use it over time," he adds.

The Port of New York and New Jersey, the U.S. east coast's busiest container port, faces the most acute physical challenges.

The area's vast consumer market is certain to keep attracting shipping lines. But the largest vessels will have difficulty reaching four of the port's five container terminals before 2016, when the $1-billion raising of the Bayonne Bridge over an approach channel is completed.

Brian Clark, a senior manager at APM Terminals Elizabeth, across a bay from the bridge's troublesome low steel arch, insists that since many ships call at New York first on leaving the Panama Canal, the port will be able to bring goods to mid-western customers quicker than rivals.

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"It would make sense to handle that cargo out of New York, provided that the costs were comparable," Mr. Clark says.

Executives at the Virginia Ports Authority, operator of the port of Norfolk, insist their port's strategic location on the mid-Atlantic coast – in convenient rail reach of many large cities – will attract more new traffic.

"We think it makes sense that you could serve so much of the population east of the Mississippi by making a port call here in Virginia," Jeff Keever, the port's senior deputy director, says.

Wick Moorman, chief executive of Norfolk Southern, CSX's main rival in the eastern U.S., points out that many key factors – including future fuel costs, canal tolls and railroad charges – remain uncertain.

Most experts consequently avoid predicting which new cranes will be well used and which will lie idle. "The best answer that we seem to receive is a qualified, 'I don't know'," Mr. Moorman says.

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