Elementary (A reprint of Vol. XXVII, Art. 18 – One year ago today.)

In-mid August 2005, Bloomberg reported that Wal-Mart Stores, Inc. and Nippon Yusen were among the companies urging Panama to enlarge the Canal in order to accommodate the new postpanamax ships that were on drawing boards. In the report, Bloomberg estimated that Panama’s reluctance to spend the $ 10 billion needed for the expansion project would cost them about $ 210 million in annual revenues.

Remember the fourth graders that were badgering us back then? One of them saw the report at home and had a hunch that those money figures were the kind of “trick question” that showed up in their tests. They figured there had to be a catch somewhere.

“Why would grown-ups want to spend $ 10 billion in order not to lose $ 210 million a year?”, they wanted to know after they figured it would take about 50 years for Panama to break even on the deal. And when a prominent economic consultant warned Panama that if it didn’t knuckle under to the demands of those advocating the use of megaships, the shipowners would take alternative routes such as the Suez Canal to reach ports along the Atlantic Coast, just to be spiteful – well, the inquisitive youngsters were, well, even more inquisitive. Of course, fourth graders and economic consultants just don’t understand the ways of big business. They actually thought that Wal-Mart and those other companies would be funding the expansion project.

It wasn’t just the arithmetic that bothered the fourth graders, though. They were trying to figure out why grown-ups were allowing so much of our imported goods to go to just one spot in California. “Don’t we have other places those ships can go to?”, one little girl asked.

“Most of us people don’t live in California, we live somewhere else”, she reminded us. “When my mother does her weekly shopping, she just goes down the street to the super market … she doesn’t drive all the way to Florida or Canada someplace.”

So maybe there’s hope for this younger generation after all. They may be slow when it comes to math, but they have no trouble with logistics. Here are some of the other questions those fourth graders asked after they sounded out the big words in Bloomberg’s report:
– If China and Japan are also using the canal, why can’t they pay for the expansion?
– If it takes an estimated nine years to complete the expansion project, don’t they know that inflation and cost-overruns will bring the price well above today’s $ 10 billion estimate?
– Why didn’t the owners of all those ships diverted at California last year know enough to send those ships to other ports in the first place? Don’t they have telephones out there?
– What about the poor people in Panama who have to move out of their homes when the canal project takes their land? Where will they go to live?
– “Is that $ 10 billion a misprint?” one of them asked. “Two years ago, when I was in second grade, I remember them estimating that the cost of expansion would be at least $ 15 billion.” [It was that little girl again.] “It seems to me”, she said, “that if they’d just go back to smaller ships and deliver at more ports, their problems would go away.”

A few months later those fourth graders got some support from an unexpected source. Nippon Foundation chairman Yohei Sasakawa, when stressing the point that users of the international canals and waterways must recognize their corporate social responsibility, stated, “Simply put, those who profit most from the use of a waterway must start helping to pay for it.”

Even the fourth graders saw the logic in that statement, and we’ve been saying the same thing to those who’ve been demanding that we here in the U.S. should shoulder the costs of upgrading the infrastructure in our lengthy supply chain. Putting it just as simply,”… those who profit most from infrastructure upgrading must help to pay for it.”

But not me, says the shipping industry. In Vol. X, Art. 27, we quoted top executives of large Asia-owned carriers in this regard.

– “‘As we look at 2007’, one said, ‘it is also significant that we take a view to 2014, when the enlarged Panama Canal is anticipated to be completed. This will … put further emphasis on the urgency of U.S. East Coast gateways to prepare for the incredible growth of cargo volume and increased vessel calls that is expected. During this period, new ships will only get larger, and port facilities will be expected to meet the requirements of these vessels … I will repeat last year’s statement that the need for expanded port space must be understood, and … all harbors should work to make the movement of cargo swift and smooth through an intelligent commitment to infrastructure development.’ [‘Not me, though,’ he says under his breath.]

– The president and chief executive of still another Asia-owned carrier makes the same point: ‘More shippers are aware of the inadequate transportation infrastructure problems in the U.S. The problems can’t be solved without the participation of government and end-users in the supply chain.’ [‘Not me either,’ says he under his breath.]

– Similarly, the American boss of an Asian-owned carrier suggests that the coordinated effort of upgrading our infrastructure should be borne by the U.S. government and the nation’s consumers … otherwise supply chains will bog down, consumer prices will go up and the economy will suffer. ‘Neither business nor government acting alone, can get the job done on a national scale,’ he said. [‘And not me either,’ he echoes under his breath.]” –

Well, what difference does it make then? The U.S. consumer/taxpayer pays for it either way. Right? We foot the bill if we’re forced to upgrade, or we foot the bill if we decline to upgrade. Well here’s a better idea. Why don’t we just tell those foreign-owned shipping lines to just take a hike? Let’s just turn things around. Let’s build our own container ships – the patented, smaller and more flexible ones, of course – so that we can service all U.S. ports? Just think of the benefits. Instead of wasting billions to “upgrade” our ports and infrastructure so that foreigners can realize profitable “economies-of-scale”, we can fund our own shipyards and create millions of jobs in those shipyards, in newly refitted ports, and aboard those U.S.-owned new-builds as well.

And besides, hasn’t the unpredicted world-wide depression shown us that those maritime consultants and CEOs don’t know what they’re talking about anyway? Those fourth graders are a lot sharper.