When Wal-Mart's enormous distribution center in Chambers County opens next year, it will trigger a substantial increase in shipments from Asia through the Port of Houston.

The costly statewide push to snare the 2 million-square-foot warehouse operation is a big win. The facility under construction will cover 50 acres and ultimately could double in size.

Wal-Mart, the world's biggest retailer, depends so much on shipments from the East that shipping lines are adding service.

From the day — 90 years ago this month — that the Houston Ship Channel officially opened, its backers have been constantly pushing for business from around the world.

While the city cheered as a boat loaded with cast iron pipe moved up the Houston Ship Channel in October 1914, just weeks before the official opening, port backers had just begun.

They convinced the master of that vessel, the Henry C. May, to contact the captain of a coal-carrying vessel to urge him to bring that cargo to the unproven port.

Capt. Benjamin Benson ultimately brought the 290-foot-long vessel Dorothy, which sailed from Philadelphia loaded with 3,000 tons of coal. Instead of going to Galveston, it plied the newly dug Ship Channel.

The entrance of that load of coal was front page news in the Houston Chronicle because the arrival of oceangoing freight was still a rarity in the city.

Leading player Today, the port is first in the United States in foreign tonnage and second in total tonnage, thanks in large part to the huge trade in petrochemicals, a natural outgrowth of the city's role as an energy capital.

But the port has also become a dominant player in the container business, handling roughly two-thirds of all containers that enter the Gulf of Mexico. This hasn't come as easily as the long-established oil business. The port is banking that it can grow, however, persuading voters to back bonds for the billion-dollar Bayport expansion.

Voters also were asked to back bonds for the first wharves built for the new Ship Channel in 1914.

Global logistics The port has pushed trade with Asia up by 28 percent over the past two years. Goods transported solely by ocean vessels amounted to about 9.4 million tons in 2002 and are expected to jump to about 12 million tons for 2004, according to statistics and projections from the Port of Houston Authority.

Trade officials at the Port of Houston say they expect business will continue to expand.

"Houston is getting back into the East Asia trade," said John Horan, the port's trade director. "There is so much growth in East Asia in manufacturing, particularly in China, and major retailers are sourcing a lot of their consumer goods out of East Asia."

Pete Smith, director of trade development for NYK Line, which recently added service through the Panama Canal to the port, said Houston won big when it snared Wal-Mart's new distribution center. U.S. consumers have an enormous appetite for shopping, and Wal-Mart is the biggest importer, he noted.

"Wal-Mart, to a certain degree, is on the cutting edge of global logistics," he said. "Different gateways in the U.S. are reaching saturation thresholds, and that will be revealed over the next three to five years at different ports."

Houston stands to gain because it will be a major distribution point for the huge retailer when its center is completed next year, he said.

The combination of Wal-Mart and the existing Home Depot distribution center near the port is driving carriers to come to Houston, said Rick Couch, who runs Osprey Line.

Smith noted that because Americans also are moving away from expensive areas to live and shifting to places like Arizona, Houston is becoming a natural gateway.

Waiting on Wal-Mart The focus on grabbing more Asian trade is just the latest of many marketing pushes for the port. In recent years, its promotion efforts have aimed at seizing opportunities in Asia and Latin America.

This year, China has been one of the world's biggest engines for economic growth. But to tap into this burgeoning manufacturing center, Houston has had to hurdle a big obstacle: Historically, most goods from Asia move through West Coast ports.

The trip to the West Coast ports and then onto trains has been quicker and cheaper than traveling through the Panama Canal, which allows for only limited ship sizes. But congestion at West Coast ports coupled with labor problems and rail congestion have led shippers to seek alternatives.

"A lot of big retailers say they want an alternative to the West Coast, to come through the Panama Canal and come to Houston," Horan said. "The near- and long-term future for us both looks very good."

Several carriers already provide service between Houston and Asia via the Panama Canal, but other shipping lines reportedly are considering adding service once the Wal-Mart center is open.

Ties to Panama Canal This growing trade could forge an even closer relationship between the port and the Panama Canal, two entities that share common roots. Both are man-made, and both opened within months of each other: the canal in August 1914, the Ship Channel in November of the same year.

Numerous improvements have been made at the Panama Canal in recent years to handle more and bigger ships, and discussions are under way to expand the "big ditch" more.

Last year, the Port of Houston and Panama Canal Authority entered into a business agreement aimed at attracting more goods from Asia by promoting the route.

"The most recent is NYK Line with Panama-Houston relay service," Horan said. "And we have got several major ocean carriers looking at Houston for East Asia services."

The initiative for the service by NYK and Megacarriers, which began in August, came from Wal-Mart, according to NYK's Smith.

Each of the two vessels used for the service carries 500 20-foot-equivalent containers at a time and can easily traverse the canal.

But the fact remains that many vessels steaming to the United States from Asia are too big to pass through.

West Coast bottleneck Currently, cargo is backing up again on the West Coast, with as many as 40 vessels at a time anchored in the harbor at Los Angeles.

The problems on the West Coast stem from labor shortages as well as rail congestion.

Shippers here are also experiencing rail headaches, with demand growing faster than Union Pacific can handle. The port's Barbours Cut container terminal is operating at capacity.

For that reason, the construction of Bayport was a big topic of discussion when Houston port officials went on a trade mission to East Asia recently, calling on corporations and government officials in Tokyo; Taipei, Taiwan; and Shanghai, China.

Plans call for the initial phase to come on line in 2006, although Bayport opponents are pursuing legal challenges.

"Overall, the Port Authority of Houston has become very aggressive," Smith said. "They've done their work and seem to have enough foresight and a good plan."

Also, China effectively owns the Panama Canal.

Picture of the "Chinese" apprentices by the Canal

The Chinese Threat!!!

In the past few months, Panama has been subject to a barrage of "Bad Press" generated by US politicians that not only is unfair, but is seriously impacting tourism, investment, and retirement in this beautiful country. To help understand these myths I have the honor of presenting Mr. Robert Baker who is a well known American businessman living and involved in the commercial business circles of Panama for many years. He is well qualified to address this question. Here is his comment on this ridiculous situation his own words:

June 25, 2000

As past president of the American Chamber of Commerce and US Navy League in Panama, I am surprised at the number of intelligent people who have been fooled by "private agenda" politicians into believing that there is a Chinese problem with the Panama Canal. Some have gone so far as to suggest that the "red Chinese have taken over the Canal". This is so far from the truth that one wonders how such a story can get repeated by intelligent people. Here are the facts.

Three years ago in early 1997 I was invited by US Ambassador William Hughes to a breakfast with six visiting US Congressmen at the ambassador's home in La Cresta. These Congressmen, I am embarrassed to say, were down here on a "fact finding mission" to investigate the Chinese rumors. I think it important to note that it was the month of February which is very cold in Washington and very sunny and warm in Panama with tropical breezes flowing through the palm trees, not to mention the fact that the trip was paid for by all of us US taxpayers. If you were offered a free trip to a beautiful and sunny tropical paradise during the coldest month of the year in the States, what would you do? Their visit helped spread the Chinese rumor.

Here are the facts as I presented them to our "concerned" U.S. Congressmen. Several large companies submitted closed bids to manage the two ports on the Pacific and Atlantic sides of the Panama Canal. The large US construction company, Betchel bid only $2 million per year while the large British port manager, Hutchinson Wampoa bid almost $22 million per year. If you were the Panama government, which bid would you accept? Hong Kong was a British colony at the time and Hutchinson Wampoa is a British company who manages ports all over the world. They are a public company traded on all major stock exchanges. Anyone, including China, can own shares of their stock. It is a far stretch to conclude that since Hong Kong has reverted to China, that now makes Hutchinson Wampoa a Chinese company and that implies China has taken over the Panama Canal. It is also easy to understand that Betchel, the only American bidder, probably helped seed the Chinese rumor over sour grapes because they lost the bid. They also used US political pressure to try to get the Panama government to nullify the winning bid and open the process for re-bidding. It failed.

The "Chinese control the canal" idea is absurd. There are no Chinese running the ports. They are British and Panamanian employees. Keep in mind that the US military can return to Panama "without notice" at any time to insure the security and independence of the Canal.

We defeated Japan in W.W.II. Would you say that Japan now owns or controls the US government? After all, they own more US treasury bills than any country on earth.

Other facts you might want to consider if you are concerned about visiting or investing in Panama are the multinational corporations who find Panama to be a very good investment. Kansas City Southern Railroad won the bid on the old Trans Panama railroad line. Their investment is over $200 million. Bell South won the bid to establish the cellular telephone system and invested $100 million, while Cable & Wireless won the bid for the land lines and invited $652 million the first year and $500 million the last two years, and the list goes on and on. Panama has received over $2 billion in foreign investment during the past several years and privatization has brought in the latest technology. U.S. companies that have located here include Microsoft, Mobile Oil, AT&T, NCR, Delta, FedEx, American Airlines, Swift, General Mills, Xerox, Continental Airlines, DHL, Lanier, Kodak, G.E., Kraft Foods, Nabisco, Nestle, Coca-Cola, Pepsi, Merrill Lynch, Bank of America, Chase Manhattan, Citibank, Intel, 3M, IBM, Bristol, Meyers, Pfizer, Johnson & Johnson, Exxon, Colgate, Amway, Schering-Plough, Proctor & Gamble, Marriott, Holiday Inn, McDonalds's, Friday's, Bennigan's, etc, and these companies are only several of the more than 200 that have made substantial investments for long term returns.

I would be happy to discuss any aspects of the above report with anyone concerned with Panama. My cell phone, e-mail, and fax are listed below.

Best regards,
Robert E. Baker
Financial Consultant
Fax: (507) 265-6204
E-mail: robert.baker@cwp.net

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