Panama Canal expansion could cause major shift in fortunes of companies that depend on US West Coast trade; currently, 70% of trade from Asia comes through Los Angeles and Long Beach, but canal is expected to create more deliveries on East Coast

Cindy Allen

PHOE , April 14, 2014 (Associated Press) – Economic trade winds could blow away from Arizona someday because of a multibillion-dollar project taking place thousands of miles away.

The $5.25 billion expansion of the Panama Canal could mean a potentially huge disruption to Arizona's trade flow that would favor East Coast ports, The Arizona Republic reported (http://bit.ly/1n4qCwN).

The expansion of the 100-year-old waterway would have implications for shipping routes, port development and cargo distribution, a report by the U.S. Army Corps of Engineers stated.

According to the project plan, the canal would be widened by 2015 to handle large, modern cargo ships. The result would mean big vessels from Asian countries, including Japan and China, could sail through the canal to reach U.S. cities on the East Coast and along the Gulf of Mexico. Currently, 70 percent of trade from Asia comes through the ports of Los Angeles and Long Beach and then by truck or railroad into Arizona.

"We look at these ports in Southern California as our gateway to global markets," said John Halikowski, director of the Arizona Department of Transportation.

The state transportation department, in fact, reported that commercial trucks make 8 million crossings into and out of the state annually. Most of them are on east-west routes.

According to a 2012 study by BST Associates, thousands of Arizona jobs in the wholesale and retail industries are sustained by imports brought into the two California ports. The state has investments that are dependent on port trade. In suburbs west of Phoenix, there are acres of warehouses belonging to Target, Amazon and other companies. The buildings take less than a day's drive to get to from the ports and make it easier to avoid gridlock driving through California.

Meanwhile, ports from New York to Miami have reportedly been making improvements such as building tunnels and dredging their harbors in anticipation of the Panama Canal expansion. Some politicians on the East Coast are hoping to gain dividends for their states when the project is complete.

"There will be a significant amount of additional shipments that will come to the East Coast, rather than go to the West Coast," Florida Gov. Rick Scott told NPR last November. "By investing now, we have the opportunity to get companies to expand here, grow here."

Arnold Maltz, professor of supply-chain management at the W.P. Carey School of Business at Arizona State University, said there would be minimal impact for Arizona from the canal project, at least initially.

"It takes time to change trade routes," Maltz said.

There is also a chance that companies will stick with shipping through California and then using ground transportation in Arizona, especially with factors such time and fees. It can cost up to $400,000 for a ship to cross into the Panama Canal.

According to the Union Pacific railroad, a shipment from Shanghai, China, takes 13 days to reach Los Angeles or Long Beach. But going through the canal and then to an East Coast destination, the shipment would take 27 to 29 days. The railroad operates 640 miles of track in Arizona and handles trade on a Los Angeles-El Paso, Texas route.

"We believe diversions resulting from the Panama Canal expansion in 2015 will not have a material impact on our overall growth prospects," said John Kaiser, a Union Pacific vice president.