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Double-Wide: Who's Set to Benefit From the Expanded Panama Canal?


The historic renovation could be a boon for US ports, but right now the US is falling behind other global players.


The extremes of the problem might best be exemplified by the current situation in Mississippi. Here administrators of the Gulfport Port have presented state Governor Phil Bryant with an evaluation of the issues facing them in anticipation of the expansion. They listed several daunting problems that need to be addressed, writing:

"In addition to a relatively shallow ship channel, the port is not near a population base large enough to generate significant imports, lacks area warehouse space tied to rails and railways directly linked to inland markets, has no refrigerated warehouse space and suffers from a perception of high labor costs."

In order to see that port ready for post-Panamax ships, the governor is considering diverting funds from planned storm-surge protection and instead using the money to deepen the ship channel to 45 feet, which still would not be deep enough for the largest expected ships. It would require an additional $20 million dollars, and in the words of the governor, a "robust evacuation plan" in anticipation of future hurricanes.

However, it's likely none of this will happen unless the port can acquire federal funding. It's far down the line of ports approved for construction and federal funds, and would require years of studies by the Army Corps of Engineers before receiving approval, which isn't even guaranteed.

Brazilian Iron Ore and Colombian Coal

While the United States has been mired in legislative processes, preparations for the Canal's expansion have been underway in other countries for quite sometime.

In Brazil, LLX Logística S.A. (LLXL3.SA) -- the logistics arm of Brazilian business magnate Eike Batista's EBX Group -- is building what is slated to become South America's largest port. Located in Rio de Janeiro state, the Açu Superport Industrial Complex will be fully operational by the time the Panama Canal's third lane opens.

"This port will be able to support the largest ships in the world, with piers extending literally a mile out into the ocean," says Robert I. Lax, who has been a lawyer and business consultant focusing on Brazilian trade mining and private equity in emerging markets for the past 19 years.

Lax tells Minyanville that he sees the sudden availability of Brazilian iron ore and Colombian coal to China, Japan, and other Asian countries as one of the biggest effects of the Canal's expansion.

"People like Batista [the chairman of EBX Group] and mining interests in Brazil and Colombia are entirely prepared to take advantage of the new port capacity. And they don't need to wait for political organizations to make the decisions to get the funding," he says.

Brazil is home to Vale S.A. (VALE), the world's largest producer of iron ore, and the second largest mining company in the world. reported Vale's second-quarter iron-ore output beat analysts estimates, climbing to 80.5 million tons from 80.3 million tons a year ago. At the same time, Anglo-Australian BHP Billiton Ltd's (BHP) iron-ore output in Brazil rose 15%. This is in the face of Brazilian exports of iron-ore rising 2.1%, much of which is being driven by Chinese demand for steel. Despite seeing prices at their lowest level since 2009, China is still the world's biggest iron-ore importer.

"Many of these Brazilian companies are betting quite heavily that they will be able to most efficiently supply China" Lax says.

No positions in stocks mentioned.
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