More than 3,000 miles from the Pacific Northwest, the Panama Canal Authority is excavating and dredging enough dirt to displace roughly 100 Empire State Buildings.

But the massive effort to enlarge the canal that crosses the Isthmus of Panama could have repercussions closer to home, potentially boosting crop prices and reducing rail shipping costs for farmers in the Northwest and elsewhere.

Along with the construction of new locks, the expansion of the Panama Canal is expected to more than double the size of container ships that can pass through it. The $5 billion project, which is about two-thirds completed, has elicited a lot of speculation that container ships loaded with Asian cargo will bypass West Coast ports and head straight for the Eastern U.S. seaboard.

While much of the focus has been on the larger canal’s impact on imports, the expansion is also expected to impact the shipping of outbound U.S. grain to Asia.

“We have a significant increase in capacity” through the canal, said John Vickerman, a shipping logistics expert with Vickerman & Associates.

Currently, about 55 percent of the global fleet of ships that carry dry bulk are able to fit through the Panama Canal, he said. When the project is done in 2015, the proportion will increase to 80 percent of the fleet.

The implication is that more corn, wheat, soybeans and other grains from the Midwest will be able to move down the Mississippi River and through the Panama Canal on its way to Asia instead of being shipped by railroad to West Coast ports.

Last year, the Panama Canal reported about 12,900 transits of commercial ocean-going vessels, with dry bulk carriers representing more than 3,300 transits.

Due to the deepening of the canal, dry bulk vessels will also be able to travel fully loaded, further increasing the volume of grain passing through the canal, said Ken Eriksen, senior vice president of transportation for Informa Economics.

Since each ship can carry heavier loads, the cost of transiting the canal will be spread over more grain, reducing the per-ton cost of freight, he said.

This improvement will make it more economical to ship more grain from farther inland along the Mississippi River — potentially eating into territory that has traditionally relied on railroads to transport export-bound crops to the West Coast to be loaded onto ships bound for Asia, Eriksen said.

For farmers in the Northwest and across the U.S., the increased competition between the rail and ocean freight companies is good news, he said.

“They’re going to have to work harder to get the farmer’s grain,” Eriksen said.

Railroad companies, as well as Northwest ports and grain terminals, haven’t taken the Panama Canal expansion lying down, he said. Since 2007, when the project began, they’ve been making their own improvements to infrastructure.

“They’re not going to shut down, I’ll tell you that,” Eriksen said.

The grain exporting capacity of the Northwest has increased by 30 percent in the past five years, compared to 10 percent nationally, he said.

“You’ve got immense expansion in the West Coast elevator system,” said Bill Wilson, an agricultural economics professor at North Dakota State University.

With more competition from dry bulk ships, railroad companies may be forced to reduce the prices they charge for shipping, or at least contain them, Eriksen said. “It might slow down the rate of increase.”

At the same time, grain handlers in the Northwest may pay farmers higher prices to ensure they’re using their export capacity, he said.

“The export elevators are going to compete among themselves to attract volume to their facilities,” Eriksen said.

A key but subtle effect of the Panama Canal expansion is that ship builders tend to build vessels to fit its dimensions, said Sebastian Degens, general manager of marine and business development at the Port of Portland.

“The Panama Canal has influenced the design of ships worldwide,” Degens said.

At the Port of Portland’s grain terminal, for example, the channel was dredged to a depth of 40 feet because the Panama Canal allows for a depth of 39.5 feet. In 2010, the port’s channel was increased to 43 feet deep, while the canal’s depth will be about 50 feet when completed.

Fortunately for the Columbia River port system, ship builders are now finding it more efficient to increase grain volume by making vessels wider rather than adding to the depth they require, Degens said.

“That’s our sweet spot,” said Degens. “We can go wider all day on the river.”

However, the ability to move much more grain along the Mississippi River is also limited due to navigation issues, such as channel depth and the river’s antiquated lock system, Eriksen said.

While the barge system along the Mississippi still provides for healthy flows of U.S. grain, the export of crops may not justify the colossal amount of money needed to deepen that river’s main channel, said Asaf Ashar, research professor at the National Ports and Waterways Initiative of the University of New Orleans.

Grain elevators along the Mississippi are well-established, but not many new ones have been built in recent years, Ashar said. “The system has not changed much.”

However, investment in ports along the Gulf Coast and Eastern seaboard may increase as more container ships call on those regions, said Vickerman.

The major population centers in the U.S. are east of the Mississippi River, so cargo is pulled to that region, he said. “It’s becoming one big consumption zone.”

Outgoing shipments of grain stand to benefit as the port and transportation infrastructure in that region improves, Vickerman said.

That’s particularly true as more grain is shipped in containers to preserve their identity. Organic and non-genetically engineered crops are handled this way to keep them segregated, Ashar said.

The outlook for containerized grain is promising, particularly since elevators can take advantage of containers that would otherwise return to Asia empty, he said.

“Containerized shipping is getting cheaper and cheaper,” Ashar said.

Experts agree that the full effect of the Panama Canal’s expansion will be greatly determined by how much vessels are charged to use the upgraded passage.

Larger ships will equate to a lower per-unit cost of shipping goods, but the Panama Canal Authority is likely to tap some of those savings via higher tolls, said Jean-Paul Rodrigue, a professor of transport geography at Hofstra University.

“Panama wants to recover its investment,” he said. “You’re going to be tempted to increase tolls.”

Even so, Panama can’t set the price  too high or it will simply drive more traffic through the Suez Canal in Egypt, which offers an alternate route from Asia to the East Coast, said Vickerman.

The project is aimed at enhancing the small country’s economic power as a center of trade, he said. “Panama would like to be the Singapore of Latin America.”

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