Panama Canal Fever Sweeps Globe Again as New Era in Trade Nears

The new Third Set of Locks for the expanded Panama Canal, pictured right, with the existing pictured on left in May 2016. Credit: Panama Canal Authority

Panamas new locks on the right, the old locks on the left.
The new Third Set of Locks on the Atlantic side of the expanded Panama Canal, pictured right, with the existing locks to the left in May 2016. Credit: Panama Canal Authority

A century after transforming global markets, the Panama Canal is about to redraw world trade once again.

Nine years of construction work, at a cost of more than $5 billion, have equipped the canal with a third set of locks and deeper navigation channels, crucial improvements that will double the isthmus’s capacity for carrying cargo between the Atlantic and Pacific oceans.

When the new locks slide open to receive traffic for the first time in late June, the reverberations will be felt from Asian gas terminals to Great Plains farms and ports from Miami to Long Beach to Santiago.

The debut coincides, fortuitously, with a surge in U.S. natural-gas production that has shale outfits suddenly seeking out new export markets. The deeper channels will be able to accommodate the kind of massive tankers that transport liquefied natural gas, shaving eleven days and a third of the cost off the typical round trip to the Far East. Markets from Chile to China will also become more accessible for oil drillers across the Americas while millions of tons of container shipments originating from Asia could start bypassing western U.S. ports and opt to dock instead along the Gulf Coast or Eastern seaboard.

The anticipated growth has triggered a multibillion-dollar dredging and building binge at ports in the U.S., Caribbean and South America, all seeking to win a share of the traffic boom. Panama is also bidding to become a distribution hub for global manufacturers, with plans to add space for more than 5 million additional cargo containers.

“There are going to be a lot of feeder services that develop around it,” Moses Kopmar, a Moody’s Investors Service analyst in New York, said in a telephone interview. “What it will do is basically unlock a huge amount of the global fleet in terms of being able to transit the canal.”

The expansion won’t solve all the canal’s challenges. While tripling the size of cargo vessels it can receive, Panama still won’t be able to take the biggest container ships or crude tankers. What’s more, its traffic will depend on the health of the global economy more than its dimensions, Kopmar said.

But expansion was critical, industry experts say, for a shipping route that risked losing relevance if it didn’t grow to handle the increasingly large vessels favored nowadays. The canal, which carried some 340 million tons of cargo in the fiscal year that ended last September, accounts for about 6 percent of total world trade.

3,200-Ton Doors

When it opened for business, the canal was an engineering marvel.

In the 34-year span that began with France’s failed attempt and ended with the U.S. completion in 1914, some 75,000 workers toiled to carve out the 50-mile long (80 kilometer) channel. In the process, they created an artificial body of water, Gatun Lake, and an earthen dam that at the time were the world’s largest. They also opened up the mammoth Culebra Cut, a ditch through the Continental Divide that required the removal of about 100 million cubic yards of rock and shale. By the time work was complete, some 25,000 people were dead, many succumbing to yellow fever, malaria and other tropical diseases, according to the Panama Canal Authority.

The latest construction has come with less tragedy but its own share of cost overruns and engineering snafus. Leaky locks were one major problem, helping delay the project by two years. Those locks — a set of chambers sealed by 3,200-ton doors that raise and lower water levels — provide access to a wider lane for vessels: 180 feet across, compared with 109 feet in the original locks. (Many cargo ships squeeze through nowadays with just a couple feet of clearance on each side.) In the middle of the isthmus, the canal authority has also dredged deeper, wider lanes through Gatun Lake, where ships spend much of the inter-oceanic voyage.

For gas and crude oil companies reeling from the recent collapse in prices, the drop in time and shipping costs will provide a much-needed lift. Corn, soybean and wheat growers in the U.S. also stand to benefit, along with importers like Dole Food Co. Inc. and Chiquita Brands International Inc.

“We can send gas ships that couldn’t fit through the canal before,” said Bill Diehl, president of the Greater Houston Port Bureau, a maritime industry trade group. “Asia looks like a good market for us now. The shipping costs look like a fair fight.”

While the current locks are too small for most natural-gas carriers, almost 90 percent of the world fleet will be able to use the canal after expansion, the authority says. That’ll cut the round trip from the U.S. Gulf to Asia to about 20 days, compared with 31 days through the Suez Canal or 34 around Africa’s Cape of Good Hope. Sailing from Louisiana to Tokyo via Panama would be about 35 percent cheaper than taking the Suez, according to Jason Feer, head of business intelligence at Houston-based ship broker Poten & Partners.

“It certainly gives U.S. LNG producers options,” Feer said. “And it is a significant percentage of the reason that Asian buyers have been willing to sign contracts with U.S. producers.”

For a QuickTake explainer on liquefied natural gas, click here.

The impact on oil markets is likely to be more muted. While the canal will open to bigger “Post-Panamax” tankers, it still won’t fit Very Large Crude Carriers, the 2-million barrel behemoths that transport most of the world’s petroleum. Still, the canal anticipates the upgrades could open up new routes for oil from Mexico, Venezuela and Colombia. The U.S. government lifted its 40 year-old ban on crude exports in December and so far just one shipment has crossed the canal: 380,000 barrels of West Texas Intermediate sold to a Nicaraguan refinery in April.

“It’s a new trade and we have to see how it evolves,” said Jose Ramon Arango, the canal’s senior specialist for liquid bulk shipments. “I’m quite confident we will play a role in that evolution.”

The bigger canal may also trigger a shift for container ships that carry everything from clothes to chemicals into the U.S., the world’s largest importer. With the latest generation of ships too large for the original locks, most of that traffic now unloads in Los Angeles, Seattle and other West Coast destinations.

Though Western ports will retain a time advantage even after the new locks are in operation, cities from New York to Houston have been scrambling to upgrade facilities so they can handle the larger ships and volumes they expect. American ports will spend about $150 billion over the next four years to reduce congestion and accommodate bigger ships, the American Association of Port Authorities estimates. Caribbean destinations are also bidding to become distribution and logistics hubs for the increased traffic. Jamaica alone envisions some $8 billion in investments.

“It’s something you’ve got to do to remain relevant,” said Brian Taylor, chief executive officer of the Jacksonville Port Authority, which is seeking federal aid for a $700 million plan to deepen its waters in northern Florida. “All ships are getting bigger.”

And so is the Panama Canal.

Panama Canal Gives Nod to New Pacific Port

Panama Canal Gives Nod to New Pacific Port

The Panama Canal Board of Directors this week formally approved the development and construction of a transshipment port in Panama’s Corozal region.

Upon completion, the port will have the capacity to handle more than five million TEUs within a 120-hectare area at the Canal’s entrance to the Pacific. The project is now awaiting the final step for approval from Panama’s National Assembly.

The two-phased port project will include the construction of a 2,081-linear-meter-dock, a container yard, offices and warehouse facilities within a 120-hectare area owned by the Panama Canal.

The project’s first phase will include 1,350 linear meters of docks, three docking positions for Post-Panamax ships, and an approximate handling capacity of three million TEUs. Currently, the Pacific side has an estimated capacity of five million TEUs. With the expanded Canal, demand on the Pacific side is expected to reach six million TEUs and by 2020, eight million TEU capacity.

The National Assembly is expected to review the bill in the coming days. If approved, the Panama Canal will move forward with the development and tender process. The Panama Canal will issue a call for bids to hire a company that will be responsible for all stages of the project. The contract will, most likely, consist of a 20-year concession, renewable once for 20 years.

”Advancing the terminal in the Corozal region is a priority. It is part of the Panama Canal’s goal to explore and develop areas, products and services that are close to our core business, and that add substantial value to our customers as a one-stop gateway with multiple services,” said Panama Canal Administrator/CEO Jorge Luis Quijano.

The new port terminal will also include the construction of port facilities capable of handling Post-Panamax vessels. With a terminal of 16.3-meter-deep access canal and a depth of 18 meters along the dock, the new facility will provide docking facilities for five Post-Panamax ships.

Clips of My Panama Canal Transit –

Photos of Our Transit and More  –

Work halted on Panama Canal expansion

By Tom Stieghorst

The Panama Canal Authority said almost all activity has ceased on the project to widen the canal, amid a payments dispute with the contractor.

A consortium led by Spain’s Sacyr Vallehermoso is seeking reimbursement for cost overruns of more than $1 billion.

Two weeks of negotiations have not produced a resolution, the authority said.

Canal Administrator Jorge Quijano said the authority continues to try to find a solution, but stressed that the contractor must resume normal activity, which is critical during the dry season in Panama.

The widening project had been scheduled for completion in mid-2015. Current canal passage is not affected.