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A major Mexican port project in Baja California that would compete with the ports of Los Angeles and Long Beach may never go beyond the drawing board.

Experts believe expansion at the Panama Canal, allowing more modern mega-ships to pass through the waterway’s locks, will make the much talked-about Punta Colonet port project obsolete.

“The expansion of the Panama Canal almost singlehandedly kills the Punta Colonet project,” said Joseph Ritzman, project-development manager for SSA Mexico, which operates container terminals, cruise terminals, auto terminals and general cargo terminals at various Mexican ports, including Mexico’s largest port, in Manzanillo, - located on the West Coast. SSA Marine is a major terminal operator at the Port of Long Beach.

Ritzman noted that once the Panama Canal project is completed in 2018, cargo going from Asia to the East Coast via mega-ships can make the entire journey by water as opposed to being unloaded in Southern California or Mexico and then transported by train or truck to the East Coast. “The ships can stop in Savannah, [Ga.,] Charleston, [S.C.,] or any East Coast port,” Ritzman said.

The Punta Colonet project, located 150 miles south of the U.S.-Mexico border, has been a much talked-about alternative to using the ports of Long Beach and Los Angeles.

The public-private partnership still hasn’t gotten off the ground, even though Mexican officials originally had planned to accept bids in 2005 from companies ready to join the ambitious project.

Punta Colonet sits in the middle of a sparsely populated desert that has no developed town or infrastructure. Extensive construction is required, from dredging the ocean to building cargo terminals and railroad lines and installing electricity and water lines. The port’s cost is estimated at between $3 billion and $6 billion.

Just a few months ago, the Mexican government announced that the long-stalled bidding process would take place before the end of this year.

But Greg Watkins, president and chief executive of Watkins/Baile & Associates in Newport Beach, Calif., sees a dim future for the port. His firm has worked on several development projects in Mexico and has been closely watching the Punta Colonet project. Watkins said several factors stand in the way of the port’s development.

“Colonet has some of the most difficult things to overcome,” Watkins said. Rail access from the port to the United States border is a challenge. To construct a railroad line stretching from the port, south of Ensenada, to the U.S. border near Yuma, Ariz., requires crossing a steep mountain pass that traverses the Continental Divide. Earlier, Union Pacific had said it would be interested in bidding on the project, connecting the line to its Sunset route, which stretches from Los Angeles to El Paso, Texas.

But in May, the Omaha, Neb.–based railroad said it would not participate in the project for strategic reasons. “For us, the economic factors were not viable at the time,” said UP spokesperson Mark Davis, who wouldn’t elaborate.

Other problems in the project include rising land prices pushed up by real estate speculators, securing rights of way to build a railroad line to the U.S. border and underlying titanium rights. Grupo Minero Lobos has a mining concession to extract iron ore and titanium from the area. The mining company claims it has documents proving it is the sole concessionaire for the coastal area.

The Mexican government disagrees. In mid-May, the Economy Ministry revoked that concession, which had delayed plans to develop the mega-port envisioned to initially handle 1 million 20-foot containers a year by 2012 and 6 million containers by 2025. Last year, the ports of Los Angeles and Long Beach saw 15.75 million 20-foot cargo containers clear their docks.

Punta Colonet’s isolated location poses another problem. While millions of containers would arrive at Punta Colonet for transportation by land to the Midwest and East Coast regions of the United States, no significant amount of outgoing cargo would leave Punta Colonet for Asia because there is no manufacturing done near that area. As it is, thousands of cargo containers shipped from Los Angeles to Asia end up empty.

Ritzman and Watkins made their comments at the second annual “Port Technologies Conference,” held July 31 in Long Beach, Calif. It was organized by the Center for International Trade Development at Long Beach City College. The conference centered on Mexican port expansions and their effect on Southern California’s ports.

Two keynote speakers—Ensenada Mayor Cesar Mancillas and Carlos Jaregui, general director of port administration in Ensenada—were unable to make the conference. Jaregui, contacted by phone, said the Punta Colonet project may be slightly behind schedule, but it will go forward.

Hutchinson Port Holdings, the operator of Ensenada’s cargo- and cruise-ship terminals and the world’s largest independent terminal developer and operator, had expressed interest in the Punta Colonet project. Contacted by e-mail, the Hong Kong–based company said it is waiting for the Mexican government to issue the bid documents, which then will be studied.

Canal competition

The decision to locate Punta Colonet in the middle of a scrubby desert was made after a citizens group in Ensenada opposed expanding its small port to a gigantic cargo terminal. Ensenada’s politicians and residents preferred to cater to the tourism industry, keeping the port more for tourist-laden cruise ships than for giant cargo vessels.

So Vida Ensenadense, an Ensenada citizens group, took six months to search for a suitable alternative location, coming up with Punta Colonet.

But no one counted on the 50-mile-long Panama Canal undertaking a $5.2 billion expansion project that was approved last year in a national referendum by Panama’s voters. The canal, opened in 1914 to connect the Pacific and Atlantic oceans, will build a new lane of traffic with a new set of locks accommodating the post-Panamex ships, also known as mega-ships. The expansion is projected to be finished by 2018, doubling capacity.