FUTURE: Panama Canal

The Big Ditch is about to get bigger – and busier. Despite a nasty contract dispute this year that provoked work stoppages and cost overruns, a new, larger set of locks on the Panamá Canal is expected to begin operating in December 2015, according to Jorge Quijano, administrator of the Panamá Canal Authority, known by its Spanish initials ACP.

That’s about a year later than the original deadline, but Quijano claims it will be worth the wait.

The new locks at either end of the canal will be wider and feature deeper channels in order to accommodate vessels that are too big for the two sets of original locks. The canal will also be widened where it cuts through the mountains at the Continental Divide.

The ACP predicts that the expansion will help double annual canal revenue to $6 billion by 2025 and double tonnage carried through the 50-mile-long waterway that connects the Atlantic and Pacific oceans. “This project is critical for the country,” Quijano said.

To prepare for the larger ships that will transit the canal en route from Asia, U.S. East Coast ports have been dredging deeper and wider shipping channels and adding larger cranes and shore infrastructure with greater overhead clearance.

Still, it’s unclear to what degree the remodeled Panamá Canal will reorient international shipping. Container ships keep getting bigger and some are already too large for the canal’s wider locks. What’s more, the Suez Canal and the U.S. ship-to-rail intermodal system remain highly competitive alternatives for vessels carrying cargo between Asia and the U.S. East Coast.

“There will be increased business through the Panamá Canal, but I don’t believe it will be nearly as large as many people hoped for,” said Richard Wainio, a U.S. shipping consultant who in the 1990s served as director of executive planning for the Panamá Canal Commission, the predecessor of the ACP.

Plans to expand the Panamá Canal have been around almost as long as the canal itself. When it opened in 1914, some U.S. Navy vessels could barely squeeze through its 110-foot-wide by 1,050- foot-long locks. In 1939, U.S. military engineers began widening the canal, but the project ran aground amid the outbreak of World War II.

In 1996, so-called Post-Panamax ships that were too big for the canal were introduced. The Suez Canal has no locks and can handle these larger vessels. But the main option for the Asia-U.S. East Coast route is to dock at West Coast ports then send containers inland via railroads.

With their canal in danger of becoming irrelevant, Panamanians in 2006 overwhelmingly approved a ballot initiative to expand the waterway by building a wider third set of locks. The project was originally budgeted at $5.25 billion.

Amid the contract dispute between the ACP and the Spanish-led construction consortium, the final price tag seems likely to rise by $1.6 billion or more, according to media reports. Yet Wainio and other analysts predict the new locks will get built because, for Panamá, the project is too important – and too big to fail.

The wider canal will bring in more ships providing more toll revenue to the Panamanian government. It will mesh with other projects designed to turn the country into a full-service maritime, logistics, transportation and financial center – a sort of Central American Singapore.  After visiting Singapore in 2010, Panamá’s president, Ricardo Martinelli, said: “We copy a lot from Singapore, and we need to copy more.”

The refurbished canal will also facilitate shipping between the east and west coasts of South America and trade between North and South America. It will also lower the costs of shipping agricultural products, oil and liquefied natural gas from the U.S. Gulf Coast to Asian destinations as well as Colombian oil and coal, according to Jim Brennan, a partner at Norbridge Inc., a management consulting firm that focuses on international freight.

Touring the canal construction project in November, U.S. Vice President Joe Biden said: “As the energy production throughout the Americas grows, Panamá is going to play a critical role in bridging energy supplies in the Atlantic with a growing demand in the Pacific.”

What a wider waterway won’t do, Brennan says, is create an immediate and massive diversion of ships away from Suez and the U.S. West Coast to Panamá.

In recent years, West Coast harbors and U.S. rail lines have been investing billions to improve their distribution of Asian imports. The system is now several days faster – and in some cases cheaper – than the Panamá route. As a result, about 75 percent of U.S. bound Asian goods use the West Coast route.

Complaining that toll rates had tripled since 2008, Maersk Line, the world’s biggest container shipping company, stopped using the Panamá Canal last year to focus on sending larger ships through the Suez Canal. It was a huge and costly blow to Panamá, and it remains unclear whether Maersk will return once the new locks open.

Environmental factors may also work against Panamá. On the one hand, the new locks will use catch basins to recycle the millions of gallons of fresh water that are currently flushed out to sea with each ship transiting through the old locks. On the other hand, using the canal could mean a larger carbon footprint for ships traveling from Asia to the U.S. East Coast.

Writing in the Spring 2011 edition of Americas Quarterly, Liliana Rivera and Yossi Sheffi estimated that a Panamax vessel using the U.S. intermodal system would generate about one-third fewer CO2 emissions per 20-foot-container than ships traveling the longer route through the Panamá Canal.

Rather than a surge in traffic, the canal will likely see a gradual increase as new ships under construction with the wider locks in mind are launched, said Paul Bingham, who has worked as a consultant for both the old canal commission and the ACP.

Critics, he added, have often misjudged Panamá. When the country gained full control of the canal from the United States in 1999, some predicted chaos, but the transition was smooth. Since then, the ACP has emerged as one of the most respected institutions in the country. When it comes to the canal, he said: “Panamanians have a lot of incentives to prove the naysayers wrong.”

 

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  1. [...] Despite recent contract problems and construction delays, the ribbon cutting for a new set of locks on the Panamá Canal will likely take place near the end of 2015. This wider, third set of locks will accommodate larger ships and increase traffic, potentially doubling the waterway’s annual revenue to $6 billion by 2025, according to the Panamá Canal Authority. (Click here to read more.) [...]