Panama Is Preparing to Beef Up the Canal

The vessels that traverse the Panama Canal include big tugboats, large cruise liners and mega-containerships called Panamax because they can barely squeeze through the waterway.

But the newest containerships have been super-sized, making them too big to transit the canal.

On Monday, Panamanian President Martin Torrijos unveiled a $5.25-billion plan to widen the canal, a project that would accommodate containerships larger than Panamax size and bring the fabled 92-year-old waterway up to modern needs.

At a town hall meeting, Torrijos described the project as a bold play for economic development as well as a move to preserve the canal’s position in the global shipping market. The expansion would be largely financed by the authority that runs the canal and not require the construction of new reservoirs, which would have displaced poor farmers.

The government said the project, expected to take eight years, would nearly double the canal’s cargo capacity, create 7,000 construction jobs and boost the country’s economy.

Panamanian voters -- polls indicate that they overwhelmingly support the expansion -- will have the final say in a referendum later this year. A well-organized opposition insists that the project is too risky and could backfire if there are cost overruns.

Thanks to the emergence of China, India and other Asian nations as major global traders, the canal along with every major port and shipping route has experienced staggering growth in international trade that is expected to continue for years to come. But many of the newest ships, the so-called post-Panamax vessels capable of carrying 8,000 containers (Panamax ships carry up to 5,500 containers), are forced to bypass the Central American canal because they are too big for the locks.

The expansion is designed to attract those vessels and discourage the construction of competing projects that could make the canal irrelevant, shipping experts said.

“Without an increase in the size of ships which can be accommodated, the importance of the Panama Canal is bound to decrease over the long term,” said Mark Page, research director for London-based Drewry Shipping Consultants Ltd.

The Los Angeles-Long Beach port complex, with its excellent highway and rail links to the rest of the continent, captures the lion’s share of all container traffic entering the United States from Asia.

But the Panama Canal’s importance as an alternative to West Coast ports was underscored in 2004 when an unexpected surge in international cargo combined with a shortage of dockworkers at the ports of Los Angeles and Long Beach to cause a severe backlog of unloaded containers.

In an interview before Torrijos’ announcement, Alberto Aleman Zubieta, chief executive of the Panama Canal Authority, said the expansion would allow it to secure its strongest market segment: Asian container freight headed to and from the Eastern Seaboard of the U.S. The canal now sees 37% of all such traffic but risks losing it to expanded West Coast ports as well as to the Suez Canal, he said.

Without an upgrade, the 51-mile Panama Canal faces potential competition from ports being developed in Mexico as so-called safety valves for U.S. bound-container traffic should another meltdown occur on West Coast docks.

The Mexican ports include Manzanillo, Lazaro Cardenas, and even Punta Colonet, a bay on a sparsely populated stretch of Baja California about 150 miles south of the U.S. border. Although there are significant infrastructure deficiencies, such as adequate rail access, the goal of Punta Colonet would be to provide a cargo route directly north to the U.S. heartland.

The Panama Canal has become increasingly congested, with average wait times for ships doubling over the last two years to the current average of four to five days, said Robert J. Boyd, president of Boyd Steamship Corp., a ship-servicing firm in Panama City.

The causes are partly seasonal and the fact that the Port of New Orleans, where many ships are destined, is still recovering from Hurricane Katrina.

But the main reason is booming world trade, he said.

The construction project would in essence add a third lane for ship traffic along the canal and two sets of locks. The new locks would be 180 feet wide and 1,400 feet long, compared with the existing locks that are 110 feet wide and 1,000 feet long.

The nearly $500 million that the canal generates for Panama’s budget would not be used to finance the project, Aleman said. The project would be financed by transit fees paid in advance and with loans secured by those commitments.

The canal would use high-tech pumps to recycle 60% of all water used to fill the locks. Currently all water used in canal locks comes from reservoirs that is then flushed out to sea.

A study by Northwestern University transportation professor Aaron Gellman, who is on the canal’s advisory board, found that an expansion would cause the country’s economic output to grow 40% over the next four years and for unemployment to fall to 2.5% from the current 9% to 10% range.

“An expansion of the canal would validate the decision of the United States to turn over the canal to Panama, which is running it magnificently,” Gellman said.

The project would be the first major expansion of the storied “path between the seas,” an engineering marvel completed by the U.S. in 1914. The U.S. turned the canal over to Panama in 1999, an agreement negotiated by Torrijos’ father President Omar Torrijos and President Jimmy Carter in 1970s.

Since the turnover to the Panama Canal Authority, the quasi independent body that operates the canal has earned kudos for its management. “The canal has no debt, it’s been run efficiently and has strong financials,” said Lisa Schineller, director of sovereign debt ratings at Standard & Poor’s in New York.

But opponents who include a former President Jorge Illueca and Fernando Manfredo, the first Panamanian canal administrator, say the project is an enormous gamble, and that the canal for now is running just fine, churning out $2.1 billion in revenue for the government over the last five years.

“I only need to remind you what happened with two other mega-projects: the English Channel tunnel and the (Narita) airport on an island off Tokyo,” said Julio Manduley, a consultant advising the opposition group, referring to two projects that exceeded their budgets.

But the U.S. Gulf and East Coast ports that would benefit from the expansion are excited by the prospects.

“It would be a very big deal for us,” said Tom Capozzi, a senior official with the Virginia Port Authority, one of the East Coast’s busiest container port complexes.

The Virginia ports get the vast bulk of their growing all-water service trade from Asia through the canal. Nearly one-third of the port’s business now arrives from or departs to Asia, which has supplanted northern Europe as the port’s single biggest regional customer.

Kraul reported from Mexico City and White from Los Angeles.