By Pedro Monreal González
Cuba could be close to a favorable situation to renew its development strategy and to reorganize its international diplomacy. In fact, what appears to be approaching is a kind of rare opportunity, one in century chance. This would be what could be termed as the Postpanamax era,I mean, the eventual transformation that important segments of international trade and global manufacturing organization would experience with the entry into operation of the new Panama Canal, scheduled for 2015, with effects that are predicted to be particularly intense in the geographical proximity to Cuba.
It should be clear that this is not a certainty. In terms of economic scenarios any prognosis can be unsafe. However, this would seem to be among the possible scenarios in sight, which most likely would open to the development of Cuba. Being able to use it properly is another matter, but we will return to it later.
The fact that the carrying capacity of Postpanamax container vessels that may transit through the Isthmus of Panama will increase by three times is not limited to be a shipping event. This would have a substantial effect on the reconfiguration of the logistics of global value chains based on contemporary production, from shoes to machinery. As it is known, a large part of what is now produced and consumed involves complex production networks that incorporate components and processes involving dislocated entities in multiple locations on the planet. A seemingly simple product, like a pair of running shoes, can include up to 200 different parts manufactured in more than five countries. To the extent that technological complexity of the product increases, the more complicated productive coordination schemes globally they take.
The move to Asia of a good part of the global industry in the last 30 years has led to the functioning of important traffic flows from Asia to North America, which will eventually be impacted by the passage through the channel of Postpanamax ships , capable of carrying up to 12 600 20-foot containers (TEUs) from 2015. (1) The amendment of shipping would imply a change in the operating parameters of the mechanisms of their own logistics and global supply chains. Production costs, investment decisions, the relocation of production and commercial infrastructure, cycle length design-production-consumption, business operating models and the valuation of assets, could change significantly. (2 )
To be precise, it would not be a process of “return” of the manufacturing base to the United States but an adaptation of infrastructure and logistics operating parameters in the United States and its closest geographical environment as a result of the solution of one of the bottlenecks that exist in the operation of global production chains: the limited scale of container ships passing through the Panama canal.
Major port facilities, new technologies, new participants in the chain, new distribution centers, different supply routes and establishing new productive “clusters” that involve the investment of substantial amounts have already been implemented as a result of enlargement of the canal. All with effects relatively concentrated in a geographical area that includes the Caribbean and the US East Coast and Southeastern, literally in front of Cuba.
The development of the port of Mariel, which involves what is probably now the largest investment project in Cuba certainly falls within that context, but what should be clear is that this would be just the tip of the iceberg. What is at stake goes much higher, as the possible participation of Cuba in the process would be part of the core dynamic of contemporary capital accumulation and this is a very important detail that should be taken into account when it comes to thinking Cuba’s future. It is not that everything can be explained by economic logic. It is known that there are other important factors. What is stated here is that for the first time in a while Cuba could be part-modest but effectively, of a central process of global production. There would be a limited participation to specific sectors but to function as part of a process of modification and reconfiguration costs of schemes that would affect the way it organizes a substantial part of the contemporary production and trade.
From that perspective, the new harbor area of Mariel would not simply be, as usually claimed, a modern container terminal that would be built on the special development zone. That could also happen, but it would be really important. Things could go much further, as Mariel could be a factor in reducing overall product cost for the iPhone, in a stable supply of components used by Toyota assembly plants in Alabama, Mississippi, and West Virginia, in establishing new distribution centers on the East Coast of the United States, increasing the competitiveness of Brazilian manufacturing, or in the efficient operation of the “circum-equatorial belt” that eventually will move cargo containers around the world, to mention only a few examples. Thus, the possibility that Cuba is inside or outside this would not be an issue only that affects the country. It may also be suitable for other participants in the process. If Cuba’s incorporation in this process proves beneficial for transnational capital, as it appears that is the case, it could unleash unprecedented economic and political dynamics for Cuba in the last half century.
Probably since the Haitian Revolution, over two hundred years ago, it hadn’t appeared such a potentially economic climate favorable to Cuba that combines global reach with a direct relationship to the operation of central forms of capital accumulation. Geography, like 200 years ago, gets back in favor of the possibility of reinventing, at least economically speaking, the island of Cuba.
Facts, figures and Google maps
The so-called industry of container shipping is the backbone of intercontinental supply chains that enable the operation of the main mode of productive organization of the contemporary economy: global production chains. Put another way, without the container shipping industry globalization as we know it today would not exist, which is reflected in the fact that the container shipping industry is responsible for 98 percent of intercontinental transportation and 60 percent of the value of world trade. (3)
The launch of the new Panama Canal will be instrumental in solving one of the main bottlenecks in the trade and logistics networks of global production chains. In a business where scale is critical, the so-called Panamax vessels (specifically designed to traverse the current canal locks) can carry a maximum of 4 400 20-foot containers (TEUs), much less than the 12 600 TEUs traveling on Postpanamax ships from 2015, with consequent reductions in costs per container moved it would involve, and approximate savings are estimated at 50 percent in the cost per container. (4)
A first predictable effect would be the changing of the geographical distribution of container transport between Asia and North America. Currently the west coast of the United States receives about 75 percent of the containerized cargo, which is then transported to their final destinations by the so-called intermodal transportation, mainly by rail.
The possibility of passing through Panama of larger vessels from Asia to the U.S. East Coast is expected to increase the percentage of containerized cargo that transits directly from Asia to the U.S. East Coast, estimated that between 25 and 30 percent of the containerized cargo that the west coast receives today would be transferred to the East Coast (5).
Obviously this requires huge investments, currently underway, to put the ports of the east coast of the United States, which with few exceptions are not able to receive Postpanamax ships today. Additionally, they expect major changes in the organization of logistics chains, including establishing new distribution centers that would service not only to the east, but also to the central United States. These possible amendments do not refer to any part of the world economy but the call Atlantic region of the United States, one of the areas with stronger consumer demand in the world, home to major financial markets, powerful source of technological innovation, important production base and center of global capital decisions.
But the effects of the new channel would also strongly felt in the Caribbean, as the above process could not operate efficiently in the absence of a logistics base rate in the Caribbean, a very specific kind which is called “transhipment center “or” global load center “, which would have a scale never seen before in the region and would lead to changes in the Caribbean specialization. In essence, the “transhipment centers” of the Postpanamax Caribbean will function as key pieces catering largest consumer market in the world (U.S. East Coast) and global logistics chains spanning from Asia to North America and South from megaports development and related activities such as processing zones for export. (6)
Although some of the Postpanamax vessels transiting through the new channel eventually would connect directly to the ports of Asia with a relatively limited number of ports on the U.S. East coast (currently being expanded), a system based on the arrival of large container ships to the Caribbean megaports to shift the burden (including the rearrangement of the contents of containers and adding value locally) to smaller vessels that have direct access to most ports in the east and southeast United States is more efficient to arrange an alternative network activity distribution by “transhipment” from a few major ports on the East Coast of the United States capable of receiving Postpanamax vessels to other smaller American ports (7).
- Enhacement of Canal de Panamá
It is estimated that a similar plan but focused on the rest of the Caribbean and South America, especially with respect to Brazil, it is also the most advantageous for the containerized cargo movement in those areas. But the process is not limited to some very few megaports in the Caribbean function as large-scale distribution continental nodes (United States and the rest of America) but also include the establishment of those already some experts call the “Caribbean getway” a regional node of a logistical network articulated around three or four mega-ports in the Caribbean that could function as a key part of the “circum-equatorial belt” consisting of an efficient system containerized cargo flow with a truly global reach and in which Caribbean megaports would connect not only container flows between Asia and America but also from Asia, America and Europe. (8)
Those are the reasons why major corporations specializing in the operation of ports and marine cargo lines are betting heavily and investing heavily in the development of mega ports in the Caribbean.
Although apparently many candidates may exist in the Caribbean to become mega-ports, is brewing system only supports a very limited number of them. San Cristobal in Panama, Bahamas Freeport, and Caucedo in Dominican Republic, have been for some time, the favorites in that race. Kingston, Jamaica, seems not to be able to expand in time, due to lack of investment, while the port of Mariel, recently joined the competition, is probably the one that most rapidly is moving. (9) More importantly, in a medium- and long- term Mariel could have the best conditions to be established as the largest mega-port in the Caribbean, given the combination of geographic location, labor force quality, wide availability of space for future expansion, the scale of the country in which it sits, the partnership with the second largest transnational in operation of ports, and greater relative complexity of the national economy that is part and potential promotes productive linkages, despite the many problems of current operation in Cuban economy, none of which is insoluble, but whose solution requires vast, complex and profound economic, social and political changes, yet to be clearly visible.
A particularly complex investigation is not required to realize the potential benefits of Mariel in relation to the rest of the other megaports in the Caribbean. Suffice a working session with Google maps to realize the potential superiority of Mariel. In a business where the combination of scale and geography are critical, Mariel is ahead.
There is, however, one major drawback: the lack of trade relations between Cuba and the United States. Obviously this situation is not only the main hindrance to settle before Mariel becomes the number one Caribbean mega port. It is, above all, the greatest impediment that has Cuba to take advantage of an unusual situation that would change its international integration profile in order to make progress towards development. It is not a question of mega port itself but the role it may have in changing the economic structure of the country, a process that this time, unlike previous times, would be “hooked” to put it graphically, to a, global and central contemporary capital accumulation dynamics.
It is usually stated, and it is not without reason, that the use of the current expansion of Mariel and its economic advantages will not be achieved in the absence of “normal” economic relations between Cuba and the United States. It is also said, but I disagree, that that we would have to wait for such relations to be restored.
The point is, if we take good looks of things, the order of the factors could be reversed. The desirability of integrating the port of Mariel ina Postpanamax logic could unleash a dynamic of change, rooted in a combination of economic and political interests, in favor of establishing “normal” economic relations between Cuba and the United States. Clearly, many factors intervene in a process of this nature and that the result outlined above is not inevitable. However, the fact is that in the absence of a large discovery of oil reserves in Cuba (something that has failed to materialize, at least for now) there hasn’t been a situation so favorable to encourage a change in the status of Cuba-US bilateral relations as on the Postpanamax stage.
One might think that is exaggerated, but being part of a process able to cut the cost of each of the 12 million containers that arrive at the four largest ports on the East Coast of the United States, with the effect this would have on the price of consumer products in the world’s largest market, in reducing input costs of global production chains that originate in Asia, and in improving the profits of thousands of companies, it is not a minor issue. Surely that would be more relevant to the functioning of the global economy than hosting tourists, operating mines, or even producing medicines on a small Caribbean island. Policy change can be managed actively. That is precisely another matter that was mentioned earlier in this text.
- Port of Mariel
Squaring the circle
Cuba needs to develop, or to be more precise, needs to be a country in which human innovation capacity becomes the driving force behind the growth of a material base that enables ensure a high level of economic well-being equitably distributed, socially inclusive, environmentally sustainable and guaranteed for political democracy (which can take various forms). The possibility that this is achieved depends mainly on the internal political dynamics of the country, but this will not happen in the middle of a neutral international context. The external factor always ends up being internalized.
Cuba is a small island economy, currently in a very precarious situation in which the mobilization of financial assets barely manages to secure the livelihoods of its people. The reasons why this is so are varied, but at the core they are internal. However, one of the peculiarities of the situation is that the geographical factor, which potentially can be an advantage, for half a century has acted as a disadvantage. It doesn’t take advantage for its economic development from the proximity to the greatest capital accumulation space in the world and on the other hand, having to resist the political and military coercion from largest state of the planet is a negative external factor being internalized at the end.
Three questions seem relevant: Is it plausible to think that Cuba could develop as long as the singularity remains?, If the answer is yes, what would be the practical alternative of development strategy?, If the answer is no, what would be the specific plan to resolve the impasse with the United States? Obviously, the issue is complex and the answers are and will remain varied.
Trying to develop the country in the absence of an economic relationship with the United States could be regarded as impossible for some as for others would seem preposterous the notion that a small country like Cuba can develop under the shadow of the United States. After all, it is even difficult to define what would constitute a “normal” relation with the United States. It should not look to the past, as this did not happen then. It is also encouraging to review the current situation of most small economies of the world with transnational capital. Do not go far. Just look to Central America and the Caribbean.
For all these reasons, the possibility of development of Cuba, especially with regard to the role of the United States-is associated with the metaphor of “squaring the circle” used to describe the attempt to achieve what seems impossible to achieve .
There are no proposed solutions to this problem in this text. What has seemed desirable to try to stimulate discussion on the topic from the dynamics that eventually develop the very close functioning of the new Panama Canal in 2015. The aspect that has sought to highlight is that it would be an event that would potentially be very important in Cuba and in fact seem to be the best chance in a while to try to rethink the possibilities of national development and international diplomacy of the nation. Being something about the future that is said here is an inevitable speculative component, which should not worry too much because any attempt to move the debate aimed at producing knowledge is based on the analysis, but also goes some way by speculation.
The brief assessment presented here is based on the consideration that it would be unheard of for Cuba, at least in the last two hundred years: the chance to be part of a core process of accumulation of capital, in this case of a reconfiguration of global production chains, and the possible effect this would have on modifying powerful economic and political interests in favor of Cuba’s participation in the process.
We had already explained before is not a process about which there is certainty. It is worth reiterating now that the incorporation of Cuba to the process is not inevitable and should be dictated solely, or mainly, by economic rationality. Nor would it be responsible to bet the fate of Cuban society on the simplistic alignment with the interests of international capital. Of course in the area of strategies and policies are always more than one option and it is clear that politics will be crucial in the short and medium term, but should take due note of the scale and nature of the process that could be looming.
Notes:
(1) TEU is the most used unit of measurement of capacity for container shipping. It is an acronym of the phrase “Twenty-feet Equivalent Unit” and is the size that has been established based on the transport of containers, taking as unit the capacity of a 20-foot container.
(2) Conway K.C., North American Port Analysis: Beyond Post- Panamax Basics to Logistics. Real Estate Issues. Volume 37, No. 1, 2012.
(3) Pinnock, Fritz and Ibrahim Ajagunna, “Expansion of Panama Canal and challenges for Caribbean ports”,
Caribbean Maritime, The Official Journal of the Caribbean Shipping Association, Issue 16. May 2012.
(4) Ferry, Daniel. Panama Canal Expansion will Change the Landscape for Freight. June 20, 2012.
http://beta.fool.com/catominor/2012/06/20/panama-canal-expansion-will-change-landscape-freig/5987/
(5) Ibidem.
(6) Prince, Theodore. Panama Canal expansion: game changer, or more of the same?. Supply Chain Quarterly, 1st Quarter 2012. http://www.supplychainquarterly.com/topics/Logistics/201201panama/
(7) There is also a legal reason: the so-called Jones Act which provides that cabotage in the U.S. can only be taken by vessels manufactured in that country, registered in that country and operated by American crews, these restrictions that limit the interest of the great marine cargo operators (most of which are non-US companies) to use schemes that include cabotage in the United States.
(8) Rodriguez, Jean Paul. Factors Impacting North American Freight Distribution in View of the Panama Canal Expansion. The Van Horne Institute. 2010.
(9) MacIntyre, Dave. Growth Models, Port Strategy. 25 December 2012. http://www.portstrategy.com/news101/port-operations/planning-and-design/caribbean-set-for-growth-from-canal-widening
(From Espacio Laical)
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