Mexico’s government is setting sail with the largest infrastructure project in the nation’s history, a $4-billion seaport that it hopes will one day rival those of Los Angeles and Long Beach. President Felipe Calderon is scheduled to travel to northern Baja California today to open bidding on a development that his administration hopes will catapult Mexico into a major player in North
American logistics.

Plans call for the construction of a massive port in the tiny coastal village of Punta Colonet, about 150 miles south of Tijuana, along with new rail lines to whisk Asian-made goods north to the United States. Mexico’s aim is to snatch some Pacific cargo traffic from Southern California’s ports, whose growth is constrained by urban development and environmental concerns.

Punta Colonet is expected to have a capacity of 2 million shipping containers annually when it opens in 2014, Mexico’s transportation secretariat told The Times But officials envision it ultimately handling five times that amount. Last year, the ports of L.A. and Long Beach handled 15.7 million containers combined. The massive development is to be privately funded, with the first phase estimated to cost $4 billion to $5 billion. The government is expected to award the 45-year concession in 2009. A number of major players are expected to vie for the project, including Mexican billionaire Carlos Slim Helu, the world’s second-richest man. Slim’s infrastructure company, known as Ideal, has teamed with Mexican mining and railroad giant Grupo Mexico and New Jersey-based terminal operator Ports America Group to make a run at the deal. “We’ve spent a lot of years working on this,” said Miguel Favela, head of Mexican operations for Ports America. “It’s going to make Mexico . . . much more competitive.”

About 30 million shipping containers crossed the Pacific Ocean last year, a flow that increased about 10% annually in the last decade. A weak U.S. economy has slowed the trade, but experts predict it will rebound. With shippers increasingly worried about congestion at L.A.-Long Beach, Punta Colonet has emerged as an attractive alternative. It’s close to the United States. It possesses a wide, natural harbor. And it’s in a lightly populated area offering room for expansion. When Calderon visits the dusty hamlet of about 2,500 people today, he is expected to talk about the big changes in store. The village will need extensive upgrades to its roads, housing, electrical grid and water supply. State and local officials are planning for a city of about 200,000 to spring up around the port.

The changes envisioned are alarming environmentalists, who worry about the potential destruction of the area’s plants and wildlife. But the farmers who scratch out a living there are thrilled at the prospect. “What we need is employment for our kids,” said Jesus Lara, representative of several peasant landowner groups that are eager to sell. “Everyone is excited. Having the president come to your town is like winning the Lotto.”

But whether Punta Colonet turns out to be lucrative for Mexico won’t be known for years. Competitors up and down the Pacific coast are in the midst of major upgrades. Panama has begun a $5.3-billion expansion of its landmark canal. Canada’s Prince Rupert port in British Columbia began speeding containers to the American heartland by rail last year and is planning a major expansion. Little of the cargo bound for Punta Colonet will stay in Mexico, making the port vulnerable to the whims of shippers, who can choose other routes to the U.S.  “Nothing is guaranteed,” said Asaf Ashar, research professor with the National Ports and Waterways Institute in Washington. “It’s a big risk.”

Building a seaport from scratch would be difficult enough. But the overland transportation piece is likely to make or break Punta Colonet. The deal is being structured as a joint port-and-rail project,
requiring terminal operators, railroads and construction companies to team up in consortia to win the bid. The railroad’s ultimate route and U.S. crossing points will depend on which railway operator is chosen and how it manages to link up with existing rail networks on both sides of the border.
Union Pacific Corp. of Omaha and Fort Worth-based BNSF Railway Co. control the U.S. side of the tracks at most of the key U.S.-Mexico border crossings. Striking a deal with one of those companies to get the cargo to the American side will be crucial, said Paul Bingham, managing director of the global trade and transportation practice for Global Insight, a Massachusetts-based consulting firm.

“They have the ability to essentially choke off that port,” Bingham said.  BNSF spokesman Patrick Hiatte said Wednesday that the company was “very interested” in the Punta Colonet project. He declined to say with whom the firm might collaborate to make a bid. Union Pacific could not be reached for comment. The company earlier had teamed with Hong Kong-based Hutchison Port Holdings to make a run at the project, but that alliance dissolved last year.

In 2005, severe capacity constraints caused many importers to shift volumes from Long Beach/LA and other West coast ports in favor of places like Houston and a variety of East coast ports to gain more consistency in transit times. Now, slowing import growth combined with productivity improvements means West coast congestion issues are long gone – but by most reports, container volumes continue to move eastward for a new set of reasons.

Larry Gross, President of Gross Transportation Consulting, said recently that significant volumes of imports that previously came into the United States through West coast ports and then moved East through rail/intermodal are now coming into the U.S. via the East coast ports. “If you look at region-to-region intermodal flows, you will see that there are certain region-to-region flows that have dramatically dropped,” Gross recently said, as the containers come directly into East coast ports.

Similarly, according to a report last November by the American Association of Port Authorities, the West Coast’s share of Asian imports fell to 58 percent in 2005 from 86 percent in 1999, while the Panama Canal’s share climbed to 40 percent from 11 percent – a stunning shift in volumes. Why? Two primary factors:

* Rising fees that impact total delivered cost comparisons versus east coast ports
* Continued capacity constraints on the rail side to move containers inland

Traditionally, it has been cheaper to bring containers into west coast ports, and move them via rail to distribution centers in the central and eastern regions of the US, where they are distributed to the majority of the US population that lives east of the Mississippi.

But seemingly never-ending proposals for new container fees in California to fund infrastructure improvements and environmental impact mitigation are causing real concern for importers. For example, carriers that deliver cargo to the ports of Long Beach and Los Angeles are facing a combination of new fees that could amount to as much as $100 per fully loaded TEU.

“The cost of these fees is more than we pay to load or unload a container at the San Pedro (Los Angles) ports,” Edward DeNike, president of SSA Containers, recently said during a presentation at the Trans-Pacific Maritime Conference. “This is Southern California and we know that Northern California will follow and the Pacific Northwest won’t be far behind.” He said that his company recently lost handling business of 100,000 containers a year from one customer that shifted import volumes from Seattle to the East Coast.

As an example of the mounting fees, beginning June 1, 2008, a new $35 charge will be placed on every loaded 20-foot equivalent cargo container entering or leaving the Long Beach or LA ports by truck. When the new fees where approved, Long Beach Mayor Bob Foster commented that the new tariffs were “an important milestone for our community. It puts the costs for cleaner air where it belongs — on the prices of goods sold.” Well, that’s the way to attract more port business. As a result of these new fees, which East coast ports haven’t matched, West coast ports become increasing less cost competitive for containers that will ultimately move eastward.

Rail Capacity also an Issue. While West coast port capacity and throughput has definitely not been an issue of late, the rail lines leaving the West coast have not been able to expand their capacities at the same rates. As a result, port efficiency gains have not always results in total transit cycle time improvements. In Southern California, the challenge is getting long-haul freight out of a vast urban area. In the Northwest and Western Canada, the hurdle is dealing with the need to build more tracks and ensure reliable service through regions of heavy weather.

Planned improvements in the Panama Canal to increase throughput and the size of ships that can be handled may accelerate this trend. US West coast ports are being threatened by other change as well – the expansion of Canada’s West coast Prince Rupert port, and plans by Asian interests to invest in ports in Mexico that would move goods by rail to the rest of the U.S., bypassing West Coast urban traffic, are also getting increased attention from importers.

At the Port of Oakland, as well as ports in Los Angeles and Long Beach, a cornerstone of that effort entails persuading trucking companies to hire drivers — rather than continue to use them as independent contractors. Port officials, as well as several community and environmental groups, say this plan will cut pollution because trucking companies can afford to run cleaner trucks than the independent drivers can.

The trucking companies, however, say they cannot shoulder the additional economic burdens of hiring drivers and acquiring trucks. Nevertheless, trucking companies are being pushed to embrace some measures to improve drivers’ conditions and help reduce pollution. More than 50 percent of the truck drivers who serve California ports earn no more than $30,000 a year after expenses, according to a report by the East Bay Alliance for a Sustainable Economy and the Coalition for Clean and Safe Ports. On such wages, drivers cannot buy and maintain the most fuel-efficient rigs, the organizations argue.

Port of Oakland officials presented a proposal to its board June 7 that would encourage trucking companies to hire drivers and assume ownership and maintenance of hauling equipment. Such a plan would reduce pollution from poorly maintained old trucks and employers would provide better wages for the drivers, officials said…

New trucks can cost upward of $120,000. Used ones cost what the market will bear, depending, like automobiles, on make, year and condition. Mohammed Asif bought his last truck used in 2006 for $6,000. But Vereket Waldegorgis, another independent, spent $20,000 for his second-hand equipment. Several trucking company owners, such as Jerry Phillips of IMPACT Transload and Rail, based in Richmond, said drivers want to remain independent.

But this belief does not jibe with the petition 1,250 of the port’s 1,500 drivers signed, saying they would prefer to be employed by trucking companies. The Teamsters union and community action group Change to Win, which organized the petition drive, presented the document to the port Board of Commissioners in July.

The Port of Oakland has been waiting to implement its clean truck program until officials see how similar plans work at the ports of Long Beach and Los Angeles… Meanwhile, the International Brotherhood of Teamsters — which has tried for years to unionize port drivers — awaits the day when independent contractors will become employees. Chuck Mack, director of ports for the Teamsters union, said, “We’re comfortable we’re going to change the model in Oakland and Los Angeles-Long Beach.”

A growing U.S.-China trade rift over coated paper exports to America has direct implications for Southern California seaports, where much of the paper is shipped, the Long Beach Press-Telegram reports. Exporters of Chinese coated paper, accused by U.S. manufacturers of receiving unfair subsidies in their homeland, are now facing significant duties on exports to the United States following a March 30 ruling by the Department of Commerce. The decision, which affects the rapidly increasing volumes of coated free sheet paper moving through the ports of Long Beach-Los Angeles, comes in the wake of an anti-dumping investigation by the Commerce Department. The investigation found that Chinese paper producers were receiving unfair government subsidies averaging 18.16 percent, artificially pushing down prices on the world market and undercutting American manufacturers. “The China of today is not the China of years ago,” said Commerce Secretary Carlos Gutierrez, who visited the Port of Long Beach in January to discuss U.S. efforts to level the trade imbalance with China. “Just as China has evolved, so has the range of our tools to make sure Americans are treated fairly.”