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Wide load: the Panama Canal, running at almost full capacity, considers a major expansion project.

One of the biggest impacts of globalization has been the disappearance of borders among many countries, the product of an explosion in global trade. On the high seas, maritime trade is feeling the winds of change, and Latin America is no exception.

Congestion at the Port of Los Angeles--the result of a rising flood of U.S.-bound Asian goods--is fueling the need for new maritime routes. Other ports in the region are jumping at the chance to take in more Asian goods. The Panama Canal, which moves 4% of the world's commerce, doesn't want to miss out on this trend. After 92 years since its birth and only seven years under the control of the Panamanian government, the canal faces the challenge of building a third lock that would move ships across the country The waterway now operates at 93% of capacity.

The issue has stirred up a great deal of controversy in maritime circles. There's the cost issue; whether expansion is really needed at all; and the question of whether the construction might damage the environment. Panamanian voters will make the final decision in the referendum scheduled some time between now and 2007, as required by law. Beforehand, the Panama Canal Authority (PCA) will deliver a recommendation to its board of directors which, if approved, will go before the government, which later would put a final draft before Congress.

"Construction is needed urgently, not only for Panama, but for all the canal's users, because throughout its history it has helped so many countries' economies," says Rodolfo R. Sabonge, director of corporate planning and marketing for the canal authority. "Expansion is the tool needed for sustained economic development in any nation involved in the global economy, as well as for our country, given that our maritime business created 2,000 jobs in 2004."

At least 15% of U.S. foreign trade travels through the 80-kilometer long marine artery (China and Japan are close behind.) According to the PCA, using the canal generates costs savings of up to 20% when compared to alternative trade lanes. Robin Lanier, director of the Waterfront Coalition, a U.S. lobbyist, recently told reporters that U.S. economic prosperity depends on the canal's expansion. Sabonge says, "Countries like the United States grew under the canal's shadow, which allowed it to import and export products at very competitive prices."

The bulk of the canal's business comes from shipping traffic between the U.S. East Coast and the Far East. Trade between Europe and the U.S. West Coast and Canada is the canal's second-largest source of income. Before Panamanians vote on a referendum, the PCA wants the public to be fully aware of what expansion entails, with no room for surprises. The port authority has spearheaded more than 130 studies covering legal, financial, environmental and technical topics, among others. "Fears arise always over the matter of cost. How it will be paid, if it will mean debt to the nation, and its environmental impact," says Sabonge.

A recent study compiled by the consulting firm Global Insight puts the project's cost at US$6 billion. Building a new lock would take nine years--including both the planning and construction phases. Some estimates put the cost as high as $10 billion. The PCA isn't taking that figure seriously and is foregoing any talk about numbers for the moment. "We will not make these figures public because so far they are just speculations, but the project would cost a lot less than $10 billion," says Sabonge. Nor does the authority want to comment on financing. "There are still details that we will not reveal because we have to report them internally in Panama, but I can guarantee that the project is extremely feasible from a financial point of view," says Sabonge.

If the project goes ahead, development costs should not soak up profits from otherwise existing business, maritime analysts say. "According to how it was originally suggested, the business that the new lock would generate would cover its own debts," says Ruben Reyna, a former administrator of the Maritime Authority of Panama and president of International Mar Consult, a Panama City consultancy. "Either with financial entities or with collaborators willing to become partners, there are many options to consider. The third lock should be totally and absolutely self-financed, with no subsidies coming from the existing canal." There is no doubt that the Panama Canal is a lifeline for the Central American country. Last year, the canal brought in $1.10 billion in revenue, a figure estimated to climb to $1.25 billion this year.

If the extension fails to go forward, many shipping companies would rely on alternate routes, such as the Suez Canal; hence, Panama would lose out on new shipping revenue, analysts says. Even so, Panamanians know their route is irreplaceable. "Ships travel through Panama because they need to. If that's the case, I think it's absurd to go through the Suez," Reyna says.

Even with toll hikes that could come with the construction of a third lock, the PCA insists that shipping companies would save money by going in quickly through a third lock. Currently, the cost per container that passes through the canal is $49 and, by 2007, the figure will climb to $54. The PCA has yet to determine the amount it might charge once the canal's capacity expands, but many shipping companies are eagerly awaiting a number because any increases could affect cost structures. Global Insight suggests that the tolls could double over a decade because of the construction.

Expansion. Part of the debate revolves around the need for expansion at all. There are not that many post-panamax ships in existence--defined as having a beam of more than 32 meters and 295 meters in length and which are, subsequently, too large to use the canal in its present form. Some experts say there are post-panamax ships under construction, but they are built for specific routes, and the Panama Canal is not one of them.

"When the Panama Canal was built, current ships did not exist" says Antonio Marinetto Bald, an industry consultant. "These kinds of projects are not the product of yearly shipyard assignments but to the growth of the global transportation sector."

The growth of the shipping industry could increase the number of post-panamax ships over the next decade--the same amount of time it will take to build a third lock. "The third lock will attract a greater number of ships, and the current set of locks would continue to work at maximum capacity," says Rogelio Orillac, director of ports at the Maritime Authority of Panama. "I think there will be enough post-panamax ships to go across Panama by the end of construction."

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Title Annotation:construction of waterway locks
Comment:Wide load: the Panama Canal, running at almost full capacity, considers a major expansion project.(construction of waterway locks)
Author:Rueda, Marisol
Publication:Latin Trade
Geographic Code:2PANA
Date:Apr 1, 2006
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