Business, Economics and Jobs

Bigger means better for Panama Canal


A cargo ship heads to the Atlantic Ocean, passing by the Centennial Bridge.


Teresita Chavarria

SAN JOSE, Costa Rica — The Panama Canal has been such a fixture of maritime trade that it gave rise to a ship size: the Panamax.

But larger megaships are lining up at docks around the world, and the canal is changing with the times.

The new Panama Canal will provide these larger ships with an “all-water” route from Asia to the U.S. East Coast, bypassing the roads and railways now used to transport goods across the United States.

Panama is spending $5.25 billion to build new locks and wider and deeper channels that are expected to double the canal's capacity by 2014.

The United States is watching closely in expectation of a wave of possible secondary economic effects, from job growth to company savings and even a boost toward U.S. President Barack Obama’s goal of doubling exports over five years.

“We see tremendous opportunity with the expansion of the Panama Canal,” said Byron Miller, marketing director for South Carolina Port Authority. “It is absolutely a game-changer for our port and for our region, really for our industry.”

Currently, container ships transiting the Panama Canal can be no larger than 965 feet long and 106 feet wide — a size limit known as Panamax, said Rodolfo Sabonge, vice president of market research and analysis of the Panama Canal Authority.

But eight in 10 vessels being built in global shipyards are larger. The Panama Canal is missing out on more than 15 percent of seaborne shipping, according to the U.S. government’s Maritime Domain Awareness website.

“The ships are getting bigger and the reason is simple, it’s economics,” said Miller, adding, “you can move more cargo at a lower per-unit cost with a larger vessel.”

Upon completing the expansion, the new Panama Canal will allow ships 1,200 feet by 160.7 feet, according to Sabonge. He said the canal’s expanded channels will translate into 10 to 30 percent savings for shippers.

Not everyone is cheering on the Panama project.

Some dockworkers on the U.S. West Coast are worried about job losses if shippers choose to redirect vessels that long have relied on ports like Los Angeles to unload goods and move them across the states by railway and highway.

The port of Los Angeles and Long Beach handles 40 percent of America’s cargo, according to Peter Peyton, head of Marine Clerks at the local International Longshore and Warehouse Union. Peyton said Southern California has slated up to $10 billion in shipping-related improvement projects to defend its market share.

“We can still move it better, faster and quicker than anybody else, but we’ve got to realize we have competition, and embrace that competition and just say, OK, let the best man win,” Peyton said.

The combination sea-land route takes 18.3 days on average. That's three days faster than the water route through the Panama Canal, according to a U.S. Department of Agriculture report.

The canal tries to lure companies by arguing that the all-water route allows them to reduce their carbon footprint by avoiding trains and trucks, considered to be worse greenhouse-gas emitters than boats.

But before the East Coast can tug away trade, considerable investments are needed, port authorities say. On the East Coast, only Norfolk, Va., has the necessary water depth of 50 feet for fully loaded post-Panamax ships to navigate. 

Some ports, such as Charleston, the deepest in the southeastern region, can claim 50-foot depth only during high tide and so handling megaships depends on tidal conditions. It just got a green light from the U.S. Army of Corps of Engineers, which is responsible for port improvements, to go forward with a feasibility study to dig deeper.

Other ports need significant adjustments, such as the more than $1 billion project to raise the Bayonne Bridge to let larger vessels reach the port of New York and New Jersey. Miami is embarking on a multimillion-dollar dredging project. The list goes on.

All this action is heating up the marine property sector, say U.S. real estate groups.

In many ways, the Central American country of only about 3.5 million has become the little engine that could. The country’s president, Ricardo Martinelli, sees Panama’s economy reaching 10 percent growth in 2011.

As Panama seeks to become the Singapore of the Americas, expectations are high not just for the U.S. East Coast, but for locations across the continent, particularly as China's hunger for Latin America’s resources keeps growing. 

Ports dotting the Caribbean including Costa Rica’s Moin, Trinidad’s Point Lisas and Jamaica’s Kingston are planning or undergoing revamps.

Chile, Ecuador, Peru and Panama itself likely stand to benefit most directly from the Panama Canal expansion, said Ricardo Sanchez, infrastructure unit chief at the United Nations’ Economic Commission for Latin America and the Caribbean.

But he cautioned countries and port investors about getting too excited, as there’s no guarantee all of Latin America’s nearly 400 ports will see an onslaught of megaships after Panama’s expansion.

The Panama Canal opened in 1914 under U.S. government management. After a treaty signed by President Jimmy Carter, the United States turned over the reins to Panama in 1999. The expansion project broke ground in September 2007 and the unveiling is meant to coincide with the canal’s 100th year in operation.

“There’s some suggestion that in 2014 all of a sudden this light switch is going to flip and the world is going to change,” said Miller. “That project is already changing the world.”