SWUTC Research Project Description

Title of Project:  Evaluating the Impacts of the Panama Canal Expansion on the Texas and U.S. Economies

Project Number:  476660-00062

Principal Investigator:
Robert Harrison
(512) 232-3113
P.I. Affiliation:  University of Texas at Austin

Project Monitor:
John Roby
Port of Beaumont
(409) 835-5367

Project Status:  Active

Date Started:  9/1/07

Estimation Completion Date:  8/31/08

Estimated Cost - Current Fiscal:  $60,000

Estimated Cost - Total Planned:  $60,000

Project Summary:
Project Abstract:
Large volumes of U.S. trade pass through the Panama Canal, a century old facility that is nearing its maximum capacity. The Canal Authority received approval in 2006 to proceed with the development of a new parallel lock system capable of handing many of the larger vessels now being used in global trade and raising canal capacity. Canal transit tariffs have been increasing sharply since 2001, first to manage the demand for transit more efficiently and further increases are scheduled to fund the impending canal expansion. These will affect the cost of transporting goods consumed by the United States, particularly those moving on Asian trade lanes to Atlantic and Gulf ports.

This project will examine the role that the canal plays in the American economy. This research will develop estimates of the effects of these tariffs on traded goods transiting the Canal and bound for the U.S. First these cost changes will be identified. Other factors, such as changes to the mix of vessels that transit the canal will also be incorporated into the study. Several methods will then be evaluated, and depending on their feasibility, implemented in examining the economic impacts of these changes. The study will investigate the application of USAGE-ITC, a computable general equilibrium model of the U.S. economy which it is currently in development. Alternately, the feasibility of using other methods for aspects of the study, including the Global Trade Analysis Project (GTAP) trade model, will be evaluated.

Project Objectives:
This study will estimate the effects of predicted canal tariffs on traded goods transiting the Canal and bound for the U.S. First the transportation cost changes will be identified, and other factors, such as changes to the mix and operating costs of vessels transiting the canal - both now and in the future once the new locks are in use - will be incorporated into the study. Several methods will then be evaluated, and depending on their feasibility, implemented to determine the economic impacts of these changes. Crucially, CTR will investigate the application of USAGE-ITC, a computable general equilibrium model of the U.S. economy which has recently been evaluated in another project. Alternately, the feasibility of using another general equilibrium method for the study, notably the GTAP trade model, will be evaluated. Cordial relationships with Panama Canal Authority (ACP) staff – through TRB – are already established and it is expected that the team can compare study findings with those from other research and consulting work sponsored by the ACP on this subject.

Task Descriptions:
Task 1. Literature Review
ACP sponsored a number of important studies during their evaluation of the costs and benefits of the canal expansion and these will be reviewed as part of this task. In addition to USAGE-ITC, other models and approaches will be considered. One of these will be GTAP (Global Trade Analysis Project) which is used by a global network of researchers and policy makers conducting quantitative analysis of international policy issues. GTAP's goal is to improve the quality of quantitative analysis of global economic issues within an economy-wide framework. Since its inception in 1993, GTAP has rapidly become a common "language" for many of those conducting global economic analysis. Finally, a series of impacts on individual maritime ports in the Texas Gulf will be measured through methods related to origin/destination commodity-lanes. This will allow the selection of an appropriate research approach for the study.

Task 2.  Field Visit to the Panama Canal
The Transportation Board Annual meetings have provided, since 2004, a venue for the ACP staff to make various presentations on the analysis of the new lock system. CTR researchers have developed close relationships with ACP staff at these meetings and have received offers to visit the Head Office in Panama City. A research staff will travel to Panama and get an update on progress on the project and reports that are available from which input data for the model can be obtained. In addition, the main commodity-lane routes to U.S ports can be determined at that time, together with a list of the key Gulf ports and terminals serving these lanes. At the completion of this task, a meeting with the Project Monitor will be held to corroborate the findings, especially as they relate to Gulf ports.

Task 3. Economic Impact Models
Work will begin on the model selected in Task 1 and this will involve (a) calculating the cost “shocks” for key commodities and then (b) running them the selected model. If USAGE-ITC is used, there is every hope that the output can be checked with ITC staff familiar with the model output. Data from this task will be compared with other macro-economic impacts derived from other general equilibrium work to evaluate predicted impact magnitude and direction. 

Task 4. Survey Method for Shippers and Gulf Ports
Analyses at the regional and port level will also be undertaken to complement the impacts on the national economy estimated in the previous task. Again, the exact nature and specification of the approach will dictate the survey but it is expected that experience gained through applying an Input-Output (I-O) approach to most of the larger Gulf ports will be of assistance. Port personnel are in constant communication with key customers, steamship companies and terminal operators and the larger ports need to make annual forecasts to derive their investment and operational plans. There is also qualitative “noise” on the Panama Canal lock project within the commercial shipping sector and it is important to measure predictions derived from economic models with all sources of opinion on this topic.   

Task 5. Field Visit to Gulf Ports
A draft questionnaire will be developed and then discussed with the Project Monitor who is familiar with economic impacts at one of the major Texas Gulf deep-water ports. This will act as a pilot test which will then be followed up with telephone and field visits to most the Gulf deep water ports likely to be impacts by changes in commodity-lane capacities in the Panama Canal.

Task 6. Analysis of Impacts
Data collected from the field surveys will then be analyzed and combined with the general equilibrium results produced from Task 3. The project monitor will again be contacted to discuss the results and decide on how best to report then in the study document. 

Task 7. Report on Worked Conducted and Conclusions
This document will report the structure of the project, the analyses undertaken and the consequent results, together with any conclusions that are appropriate for both Gulf ports and the Texas Department of Transport who are responsible for statewide multimodal planning.
   
In addition, staff at the International Trade Commission has agreed to work with us as this application is evaluated. This will provide vital corroboration and also support findings as they are developed. At least one, possibly two papers are envisioned for this work, one co-authored with an ITC economist. This effort may provide a “seed” for other applications of benefit to the US transportation. Impacts of declining performance on the Mississippi locks is another potential application of the USAGE-ITC model – an issue examined at other UTC centers and the US Army Corps of Engineers over the past decade.

Index Terms:
Panama Canal Locks, Texas Economy, U.S. Economy, Containerized Trade