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Panama Canal Expansion: Challenge And Opportunity For Southwest Economy

Panama Canal Expansion: Challenge And Opportunity For Southwest Economy

“You’re talking about a drop in shipping costs equal to about three percent of the market value of the product. That’s big.”

Fronteras — The Panama Canal is a force in worldwide commerce. It leverages its location at the intersection of two oceans and two continents and is responsible for a total of 15 percent of Panama’s GDP. Its number one customer is the United States.

I traversed part of the Panama Canal near its Pacific entrance at Ciudad de Panamá with tug captain Luis Estribi. He was guiding a vessel from China— the Tai Prosperity— through the canal’s Pedro Miguel locks as the vessel made its way to the Port of New Orleans. The Tai Prosperity, a carrier of bulk commodities such as grain, is classified as a Panamax ship.

Panamax is a worldwide maritime shipping standard measurement that refers to the maximum size vessel that can pass through the canal’s original locks. But today, Panamax is passé. Now it’s all about post-Panamax, vessels that can carry up to three times the cargo as Panamax vessels. But post-Panamax vessels were too wide for the existing Panama Canal.

The U.S. Army Corps of Engineers says post-Panamax ships now carry 45 percent of the world’s cargo. But the Corps also says that by 2030, post-Panamax vessels will account for 60 percent of the world’s container shipping. The Panama Canal needed wider and deeper locks to remain commercially relevant. Following a 2006 referendum by the Panamanian people approving the construction of post-Panamax locks, the project has seen multiple delays, legal disputes and huge cost overruns.

“The project has been challenged in all senses, with the contractors, legal issues, claims, but I mean, we are moving forward,” said Oscar Bazan, Executive Vice President of Business Development at the Panama Canal Authority, known by its Spanish acronym ACP (Autoridad del Canal de Panamá).

See more pictures from the Panama Canal

That is something that tug captain Lew Stabler says should have taken place years ago. Stabler was born in the Canal Zone that the U.S. ceded to Panama as part of the Torrijos-Carter Treaty, also known as the Panama Canal Treaty. The canal was jointly run by Panama and the U.S. until Panama took full control on December 31, 1999.

“They had to do it,” said Stabler of the expansion. “It’s like being an airline and deciding, ‘Well, I don’t really want to use jets. I’m going to stay with the props.’ You’re not going to have the customers, not going to have the business. You’re just going to go belly up.”

Construction on gargantuan new locks in Panama has been mirrored in the United States as both countries prepare for the post-Panamax era. In Charleston, South Carolina, rail already takes post-Panamax cargo from Europe and sends it inland. From New York/New Jersey to BaltimoreSavannah and Miami, workers are either planning or actually dredging, raising bridges and upgrading docks.

“We will deepen our harbor to accommodate this tremendous new trend toward big container ships,” said Jim Newsome, CEO at the Port of Charleston.

There will be winners and losers, said Noel Maurer. He is Professor of International Business at George Washington University and co-author with Carlos Yu of “The Big Ditch,” an economic history of the Panama Canal. Maurer said among the winners are U.S. exporters of grain and cotton.

“You’re talking about a drop in shipping costs equal to about three percent of the market value of the product. That’s big,” said Maurer. He also projected that the cost of shipping coal to China for electrical generation there will fall by approximately $10 per ton.

Read more at Marfa Public Radio


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