Panama seeks to expand canal capacity

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Panama is seeking international support to add a $5.25bn “third lane” to its famous canal by 2014.

The expansion of the canal, which already carries 5 per cent of world trade, would transform global commerce by letting the biggest, most modern vessels sail direct from Asia to the east coast of the US.

Panama needs to win the support of its own people in a referendum, as well as that of international financiers, who will provide half the cost of the project.

On a visit to London last week to explain the plans, Samuel Lewis Navarro, Panama’s foreign minister and vice-president, said that, if the project was not built, the canal’s currently rising share of world trade traffic would start falling.

Some sections of the canal and its 12 locks, which could accommodate every ship afloat when it opened in 1914, are too small for the biggest container ships of today.

The canal also faces a capacity shortage. Following China’s manufacturing boom, it is carrying nearly 90 per cent of its annual capacity of voyages.

Mr Lewis Navarro said shipping lines were so keen to take big container ships from Asia to the US east coast that they were deploying post-Panamax vessels – those too large for the Panama Canal – on the longer, more expensive route via the Suez Canal.

“If the [shipping] industry has the choice of going through an enlarged Panama Canal in lieu of going through a longer route in Suez, we suppose that in most cases they will use Panama,” he said. “But the most important thing is that this new lane is getting more volume through the canal.”

Both the project and the referendum have enormous symbolic importance for Panama, which owes its independence from Columbia in 1903 to a revolution engineered by the US to allow the canal’s construction. Panama took full control of the canal from the US only at the end of 1999.

“For many generations, the Panamanian people fought to get the canal control back,” Mr Lewis Navarro said. “This is the first time in our history that it is the Panamanian people and only the Panamanian people that are going to decide the future of the canal.”

Under the plans, two much larger flights of three locks would be built, and some parts of the 50-mile waterway would need widening and deepening.

New lock technology will recycle water to avoid construction of reservoirs that would have displaced native Amerindian people.

Around half the construction cost will be paid from the canal’s cash flow, while the borrowings will be repaid through a doubling of average rates for transit through the canal over the next 20 years.

If work starts next year, the expanded canal should open in 2014. Mr Lewis Navarro was confident based on recent opinion polls that Panamanians would back the project in the referendum, likely to be held later this year.

The expanded canal will be able to handle ships 366m long by 49m wide – equivalent to a container ship holding 12,000 twenty-foot equivalent units (TEUs) of containers, larger than any yet built and more than twice the size of the largest ships now able to use the canal.

Neil Davidson, of London-based Drewry Shipping Consultants, said future canal toll levels would determine precisely how canal expansion affected world trade. However, because goods could be shipped more cheaply in larger ships, it would probably significantly reduce costs against alternatives. The principal alternative in the canal’s main Asia to US east coast market is to ship goods from Asia to the US west coast then on by rail.

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