Analysis: Expanding the Panama Canal
published: cw 20, 2006 in Logistics & ShippingThe expansion of the Panama Canal with the construction of a new set of locks is generating uncertainty among Panamanians. How much will it cost? Who will pay for it?
The capacity of the Panama Canal is limited today to ships with volumes of up to 5,000 TEU, a unit equivalent to 20 cubic feet. The challenge for the Panama Canal authorities is how to allow the transit of the new generation of containerships of 8,000 TEU, capable of loading up to 17 rows of containers along the decks of the vessel. Canal authorities anticipate that the new lock sluices will not have floodgates like the old ones but a “sliding one” that will slide laterally, weighing in at nearly 3,000 tons.
Any decision of the Panamanian government to expand the canal will have to be ratified by the people through a popular referendum, as established by the Constitution. Before that the electorate will vote on social security system reforms, which could cause the referendum on the expansion of the canal to become an assessment of President Martin Torrijos’ government.
Although the expansion work’s cost has been calculated at $7 billion to $12 billion, former Vice President Ricardo Arias Calderon has noted that the Panamanian government could not count on securing investment of more than $5 billion. Calderon said that post-Panamax ship owners have noticed that those ships are narrower than they thought, which generates savings in their cost as well as in the amount of water which they need to work.
The Panama Canal Authority, known as the ACP, has refused to give its official cost estimate. ACP executives have in the past spoken of the expansion work costing $3 billion to $8 billion, which would be covered by the additional revenue generated by the canal with a savings system that is being implemented. According to Fernando Manfredo, former minister and former sub-administrator of the strategic waterway, there is interest on the part of the World Bank and the Inter-American Development Bank in financing the work. However, Panama’s foreign debt is around $9 billion dollars, of which about $1.3 billion is being paid annually to hold down accumulated interest.
A recent survey conducted by the company Latin Network Dichter & Neira found that 70.6 percent of Panamanians approve expanding the Canal with only 17.9 percent of those surveyed opposing it. In 2004, shipyards received 150 orders to build post-Panamax ships. This implies an increase of 35 percent in the cargo capacity of containers worldwide, according to former Panamanian President and former Vice President of the World Bank Nicolas Ardito Barletta. Barletta. He predicts that if the Panama Canal’s capacity is not increased, the canal’s traffic will shrink to clients with low-value products, thereby inhibiting regional growth.
It is calculated that between 2010 and 2014, cargo traffic and mobility through the canal will hit its limit due to the capacity of the locks and the water used for their operation.
“We want to make the canal more competitive and to adapt it to the global changes to avoid its collapse,” said ACP administrator Alberto Aleman Zubieta. But the retired neurosurgeon and coordinator of the Pro Panama Civic Movement, Keith Holder, maintains, “The amount of cargo that passes through the Panama Canal is determined by the supply and demand of the route, not by the size of the ships carrying the cargo.”
According to Holder, it is not certain that the Canal will reach its capacity limit in 2014. Studies contracted by the ACP forecast that in 2010, 17,359 ships will transit the canal, while in 2003, 13,000 to 14,000 ships made the passage. Of these, only 11,725 were registered, which shows that instead of increasing, the shipping figures actually decreased.
As the number of Panamax ships increase — the Panamax being the largest size that can go through the canal — there seems to be a decrease in the cargo tonnage since fewer crossings are required to take the same amount of merchandise. While funding remains an important issue, one thing is clear: The 91-year-old canal in an era of increasing globalization is becoming more important for international trade, not less.
Source: UPI- Ingrid Vasquez
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